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Here is a summary of the key points in the excerpt from Eswar S. Prasad’s book The Future of Money:

Sweden and China are leading a revolution that will fundamentally change the nature of money. Their central banks are likely to be among the first major economies to issue central bank digital currencies (CBDCs) - digital versions of official currencies.
The shift away from physical cash is part of bigger changes underway in finance, including innovations in financial technology (Fintech).
Bitcoin, introduced in 2009, seemed to herald this financial revolution. Its decentralized nature and technological wizardry captured the public imagination, even though its long-term viability remains questionable.
While Bitcoin itself may not last, the underlying blockchain technology is likely to have more staying power.
Past periods of financial innovation, such as in the early 2000s, were expected to make finance safer and more efficient. But they ended in disaster in the global financial crisis.
Now a new wave of innovation through Fintech holds promise but could also have dark sides. Central banks are trying to encourage beneficial innovations while managing risks.
The changes underway will profoundly affect households, businesses, investors, and governments. The book explores the ramifications of innovations like CBDCs and analyzes the future of money and finance.
Financial innovation prior to the 2008 crisis created new instruments that were supposed to manage risk but instead added fragilities. Sophisticated models gave a false sense of security.
Money flowed to advanced economies running deficits rather than poorer countries with growth opportunities, fueling speculation. This demonstrated dysfunction in capital markets.
The 2008 crisis and subsequent eurozone debt crisis highlighted risks. Some regulatory reforms have since made financial systems more resilient.
New financial technologies promise potential benefits like greater access and lower costs but also risks like confidence issues and hacking vulnerabilities.
Decentralized systems may improve efficiency and stability but could also face risks if users lose confidence.
Banks face challenges from new competitors. While this can improve competition, it also poses regulatory challenges.
Cryptocurrencies like Bitcoin represent a major advance and challenge. Libra/Diem forced greater government/central bank attention on cryptocurrencies and stablecoins.
Overall, the next wave of disruption in finance could bring creative change but also destructive risks depending on how governments approach regulation of new innovations.
Digital currencies like Facebook’s Diem could reduce demand for fiat currencies issued by central banks, both as mediums of exchange and stores of value. This could have major implications for central banking activities.
Cash usage is declining globally. Cryptocurrencies are providing competition for fiat currencies in some functions of money like medium of exchange and store of value.
Central banks are responding in different ways - some aiming to co-opt digital currency innovations, others resisting due to concerns about stability.
Central bank digital currencies (CBDCs) are one response - digital forms of central bank money for retail or wholesale payments. Motivations include financial inclusion, efficiency, and maintaining a role for central bank money.
Retail CBDCs could provide stability without limiting private innovation. Wholesale CBDCs are less revolutionary since central bank reserves are already electronic.
CBDCs have potential advantages like easing monetary policy constraints, providing official electronic payments system, and digital transaction trails. But won’t resolve underlying institutional weaknesses affecting currency values.
Key question is how central banks will accommodate or adapt to digital currency innovations - whether to resist, accept passively, or embrace the potential.
There is extensive demand for more efficient payment services, and private sector innovations could generate substantial benefits. The challenge is balancing innovation with risk management.
Small advanced and developing economies seem to be leading the way in exploring central bank digital currencies (CBDCs), while major countries like the U.S., Europe, and Japan were initially more hesitant but are now exploring CBDCs.
Emerging market economies (EMEs) have an opportunity to leapfrog advanced economies by rapidly adopting new financial technologies. Factors like latent demand, regulatory openness, and lack of entrenched interests make these countries fertile ground.
Potential benefits of financial innovation are greater for EMEs, including expanded financial access. But volatility of cross-border capital flows could also increase.
Trust is a key building block of monetary and financial systems. Fintech and digital currencies must be viewed through the lens of how they affect trust in currencies and institutions.

In summary, financial innovation brings both opportunities and challenges, especially for EMEs. Managing risks while harnessing benefits will require balancing innovation with prudent regulation to maintain trust.

Trust is essential for the functioning of financial systems. People need to trust financial institutions and payment systems.
In the past, trust was based on personal relationships in small communities. As societies urbanized, institutions like banks were created to facilitate financial transactions between strangers.
Governments help build trust by overseeing financial institutions, providing deposit insurance, and managing currency issuance responsibly. Hyperinflation erodes trust.
New technologies like blockchain and Bitcoin allow financial transactions without trusted intermediaries. A decentralized consensus mechanism verifies transactions.
It is unclear if decentralized systems can fully replace centralized authorities for establishing trust.
Financial innovations could either democratize finance or exacerbate inequalities depending on how benefits are distributed. Their systemic effects are hard to predict due to network effects and other dynamics.
The implications for income inequality, financial access, and the global financial system remain uncertain but potentially transformative.
Money serves three functions: as a unit of account, a medium of exchange, and a store of value. It facilitates transactions and enables a market economy to function well.
Fiat money is issued by central banks and governments. It has value because the government decrees it as legal tender that must be accepted for repaying debts and paying taxes. However, fiat money carries the risk of high inflation if the government overspends and overprints money.
Money creation involves both the government and private sector. Outside money is created by central banks and governments. Inside money is created by commercial banks through lending.
A financial system has many components including banks, markets, regulators, and a legal framework. It enables pooling funds for investment and managing risk. Key markets include those for equities, bonds, and other securities.
The interplay between the government and private sector shapes money creation and the workings of the financial system. Innovations tend to shift this balance, which governments must evaluate when deciding on policy responses.

Here is a summary of the key points about money:

Outside money is issued by the central bank. It serves as a reliable and trustworthy medium of exchange. Historically it was sometimes backed by gold or silver to maintain confidence. Now most money is fiat money with no commodity backing.
Inside money is created by private banks through lending. It expands the money supply and facilitates economic activity. Inside money exists as both assets and liabilities on private balance sheets and nets to zero.
Outside and inside money coexist in modern economies. Inside money relies on convertibility into outside money for confidence.
Monetary aggregates measure the money supply. M0 is physical currency. M1 includes currency plus checkable deposits. M2 (broad money) adds savings deposits, CDs, and money market funds.
New financial technologies have reduced the need for older forms of money like traveler’s checks. Now electronic payments and ATM access provide similar conveniences more efficiently.
Overall, both central bank and commercial bank money creation enable economic activity, but excess creation can spur inflation. Tracking monetary aggregates helps gauge appropriate policy.
Currency (banknotes and coins) makes up a small and declining share of the broader money supply (M2 or M3) in most countries. However, the share has remained steady around 10% in major advanced economies like the US, eurozone, and Japan where currencies are widely used globally.
In 2020, currency accounted for 24% of the global total of $8.4 trillion. The US, eurozone, and China together account for around 75% of global currency supply.
However, China accounts for 30% of global M2 or broad money, reflecting the large size of its banking system. The US share of M2 is 18%.
The declining prevalence of cash is evident from the falling ratio of currency to broad money over time in many countries. However, the ratio of currency to GDP has increased in some major economies like Japan since the 2008 crisis due to central bank money creation and low growth.
Key implications are that the notion of money needs to expand beyond currency to include bank deposits, and technological changes affecting inside money creation by banks could have significant impact on the financial system and monetary policy.
Financial systems transform savings into productive investments, facilitate payments, and manage risks. Banks and capital markets are core parts of the financial system carrying out these functions.
Financial systems enable saving and borrowing. Banks pay interest on deposits by lending out money and earning returns. Loans enable firms to invest and consumers to buy houses, cars, etc.
Financial intermediation matches savers and borrowers efficiently to allocate capital productively. This increases economic capacity and productivity.
Financial systems help manage volatility and risk. Saving when income is high and spending savings when income is low smooths consumption. Insurance spreads risk.
Risk can be embraced through diversification. Investing in a diverse portfolio reduces risk without sacrificing returns. Diversification applies to income sources and international investments.
At a macro level, countries can also benefit from diversification of exports and GDP sources to reduce volatility. International investment opportunities allow diversification but poorer investors lack access.
Financial institutions and markets like banks, stock markets, and bond markets comprise the financial system and enable its key functions. Regulation and information shape how well the system works.
Banks play a vital role in financial systems by transforming short-term deposits into long-term loans for investments, thereby supporting economic growth. However, this also makes them vulnerable to bank runs.
Banks mitigate information asymmetries between borrowers and lenders by developing relationships and requiring collateral, though this can limit access to credit for poorer households.
Equity and bond markets allow companies to raise funds and investors to diversify portfolios beyond bank deposits, albeit with more risk. Access may be limited in some countries.
Financial innovations like derivatives help manage risks but have also enabled speculative activities detached from the real economy.
Overall, the financial system enables savings to be channeled into productive investments, but inequality of access and speculative risks need to be managed.
Financial systems involve various institutions that enable the transfer of funds between savers/investors and borrowers. Key institutions include banks, insurance companies, pension funds, mutual funds, and investment banks.
Banks take deposits and make loans. Commercial banks focus on retail customers while investment banks provide services to large institutions and corporations.
Insurance companies and pension funds pool risks and savings for specific purposes like health, life, or retirement. Mutual funds pool investments from many small investors.
Financial markets allow trading of financial instruments like stocks, bonds, derivatives, etc. Key markets include stock exchanges for equities, bond markets for debt securities, and over-the-counter markets for customized instruments.
Central banks oversee monetary policy, regulate banking, and manage payment systems. Government agencies regulate other financial institutions and markets.
Payment systems enable transfer of funds domestically and globally. Retail payments are increasingly digital while wholesale payments between banks use real-time gross settlement systems.
Financial innovation has led to new products like derivatives and mortgage-backed securities which can spread risk but also pose systemic threats if misused, as seen in the 2008 crisis.
Financial institutions like banks, investment firms, and insurance companies are regulated by governments. But there are many other financial entities like hedge funds and private equity firms that fall under the shadow finance system with minimal regulation.
Shadow finance carries a negative reputation due to things like high-interest payday loans. But it also encompasses venture capital funding for startups, an important source of seed capital for innovators.
Banks settle payments between each other through real-time gross settlement (RTGS) systems, often run by central banks. This reduces risks compared to net settlements.
Cross-border payments are complicated by different currencies, regulations, incompatible systems, and time zone differences. New financial technologies are trying to improve these payments.
Hedge funds are lightly regulated compared to mutual funds, with investors bearing more risk. Private equity and venture capital provide funding for non-public companies and startups in exchange for potential high returns despite high risk.
Overall, shadow finance plays important roles in the financial system, but with risks due to minimal regulation. New technologies may disrupt parts of shadow finance like cross-border payments and startup funding.

Here is a summary of the key points about shadow finance and financial inclusion:

Shadow finance refers to financial activities that take place outside the traditional, regulated banking system. It includes entities like hedge funds, private equity firms, and shadow banks.
Shadow finance provides useful services like risk management tools and credit to underserved groups, but also poses risks such as vulnerability to bank runs. Regulators face a balancing act between reaping benefits and controlling risks.
Many individuals and businesses worldwide lack access to basic financial services like bank accounts, loans, and insurance. This financial exclusion disproportionately affects the poor, especially in developing countries.
Causes of financial exclusion include poverty, lack of internet/technology access, and insufficient bank branches in rural areas. Consequences include difficulties managing savings, securing credit, and coping with income shocks.
Expanding financial inclusion is seen as crucial for economic development and welfare. Policy solutions involve new technologies like mobile money and agent banking, plus government initiatives to promote account ownership.
Fintech innovations can expand access but also have risks around data privacy, high fees, and unsustainable credit. Regulating fintech to ensure consumer protection while enabling innovation is a key challenge.
Financial inclusion is measured by the share of adults who have an account at a financial institution or through a mobile money provider. Mobile money is especially important for financial inclusion in sub-Saharan Africa, where about 20% of adults access accounts this way.
In high-income countries, account ownership is nearly universal, around 94% of adults. But even some rich countries like the US have gaps, with about 7% of households unbanked.
In low- and middle-income countries, only 63% of adults have accounts on average. The share ranges from around 20% in some countries like Cambodia and Pakistan to as high as 93% in Mongolia.
Financial inclusion tends to be higher in urban areas and among wealthier households. There are also gender gaps favoring men in many developing countries.
The main reasons households remain unbanked are lack of money to maintain accounts and difficulties accessing financial institutions because of cost and distance.
New financial technologies have potential to increase financial inclusion and provide broader economic and social benefits. But risks need to be managed.
Trust in institutions is crucial for finance. An open question is whether new decentralized systems like cryptocurrencies can engender trust without relying on traditional trusted intermediaries.

Here is a summary of key points about the foundational elements of finance:

The latest wave of financial technology (Fintech) innovations has the potential to profoundly transform financial services and markets. Key innovations are improving financial access, efficiency, and stability, but could also create new risks.
Fintech is affecting core financial functions like payments, credit, savings, and insurance. The biggest impact is likely to be on payment systems, including retail, wholesale, and cross-border payments.
Mobile money services like M-PESA in Kenya have provided basic banking services via mobile phones to millions of unbanked and underserved people in developing countries. This has expanded financial access.
Big data, artificial intelligence, and machine learning are enabling greater automation in areas like credit underwriting, reducing costs. But they also pose risks like perpetuating biases.
Peer-to-peer lending platforms are expanding access to credit by connecting borrowers and lenders directly. But concerns exist about transparency and risk management.
Cryptocurrencies like Bitcoin allow direct peer-to-peer transactions without centralized intermediaries. But extreme volatility and the risk of runs limit their viability as a mainstream payment system.
Incumbents like commercial banks face disintermediation. But they could also adopt new technologies themselves to become more efficient. The viability of current institutions may be affected.
Mobile money systems like M-PESA in Kenya have provided a simple way for people to access basic financial services via their mobile phones. This has dramatically increased financial inclusion in countries like Kenya.
However, while mobile money has helped people access basic banking, it has not yet provided full access to credit and other financial services. Significant barriers remain.
Fintech innovations are transforming financial services in areas like lending and payments. New challenger banks provide fee-free, online-only accounts.
Peer-to-peer lending platforms like Prosper and LendingClub directly match individual borrowers and lenders, circumventing traditional banks. However, default risk is a major concern.
While promising, these new fintech players have yet to displace traditional banks, which still dominate finance. But they are forcing banks to adapt and improve their own technology and business models.
New technologies bring risks as well as opportunities. Mobile money enables illicit transfers, while defaults can be high on peer-to-peer lending platforms. Appropriate regulation and oversight is important.
LendingClub is a peer-to-peer lending platform that allows investors to lend money directly to borrowers. It charges fees of 0-6% and has partnered with banks to originate loans on their behalf.
LendingClub has succeeded in underbanked areas and was the first P2P lender to register its loans as securities with the SEC.
Fintech lenders like LendingClub have grown rapidly, originating 39% of unsecured personal loans in 2018 versus just 7% in 2013. However, they have become more selective over time, lending mainly to creditworthy borrowers.
Funding Circle is another P2P lending platform, focused on small business loans. It has facilitated over $12 billion in loans but suffered high default rates early on.
Upstart uses education and job history in addition to credit scores for underwriting, claiming higher approval and lower default rates.
LendingTree is an online marketplace connecting borrowers and lenders, making loan shopping easier.
Crowdfunding platforms like Kickstarter and Indiegogo allow creators to raise funds for creative projects from backers who support the ideas.
In China, Ant Financial (now Ant Group) has been innovative in payments and lending. Its Yu’ebao money market fund turned Alipay into a digital wallet. Ant also operates Zhima Credit for credit scoring.
Ant Group and other fintech lenders in China and other emerging market economies (EMEs) are using alternative data and algorithms to provide loans to individuals and businesses that lack traditional credit histories. This expands access to credit.
Ant Group’s MyBank pioneered a “3-1-0” loan approval model for small and medium enterprises (SMEs) and ramped up lending during COVID-19. It claims low default rates despite lending to riskier borrowers.
Ant’s consumer lending arms Huabei and Jiebei also claim low default rates based on alternative credit scoring methods, but there are concerns about opacity and risk management.
The Chinese government blocked Ant’s IPO and required it to scale back lending, aiming to curb potential systemic risks. Other EME fintech lenders like Lufax and Lendingkart face increased regulation.
Fintech lending has expanded access to credit but concerns remain about transparency, risk management, privacy violations from using personal data, and high interest rates for marginal borrowers.
Fintech lenders have grown rapidly but not fully displaced traditional lenders in major economies. Their impact remains mixed.
Fintech lenders have rapidly gained market share in mortgage lending, increasing from 2% to 10% between 2010-2017. They process loans faster without more defaults, suggesting improved efficiency.
Fintech lenders provide more loans in underserved areas like those with higher denial rates, lower credit scores, non-metropolitan areas, and “bank deserts.” This expands credit access and may reduce discrimination.
However, high interest rates by some Fintech lenders have raised concerns, especially in developing countries where it may trap borrowers. Automation can also perpetuate biases if based on flawed data.
Insurtech is using AI to make insurance simpler, create new products like on-demand and pay-per-mile auto insurance. This better serves the gig economy and saves money for infrequent drivers.
Microinsurance thrives in China, where ZhongAn uses AI to swiftly develop and provide low-cost, customized insurance products based on consumer transaction data.
Risks remain, like lack of reserves, flawed algorithms, and over-indebtedness of borrowers. But Fintech and Insurtech have potential to expand access, efficiency, and customization if developed responsibly.
Payment fintech is transforming domestic and international commerce by making payments more efficient.
In the U.S., services like PayPal, Venmo, and Zelle are providing easier and cheaper alternatives to checks and cash for person-to-person payments.
In China, Alipay and WeChat Pay have enabled a payments revolution through QR code systems that are extremely low cost, easy to use, and integrated across platforms.
Keys to the success of Chinese systems are their massive scale, negligible fees (0.4% on average), and efficiency. This contrasts with the high fees of 2.5-3% for card payments in the U.S.
Chinese consumers have not widely adopted credit cards, so digital platforms created a parallel low-cost payment system versus the lucrative card payment business of traditional banks.

Here is a summary of the key points about digital payment systems:

Digital payments are becoming ubiquitous globally, with developing economies like China and India leading in adoption and innovation.
In China, Alipay and WeChat Pay have captured over 90% of the mobile payments market, processing trillions in transactions annually. They have very low fraud rates.
India has created a public digital infrastructure called the “India Stack” to enable financial inclusion. This has allowed private innovations like Paytm to thrive by plugging into the stack.
New backend payment processors like Stripe and Square are making online payment processing accessible for even small businesses. They provide value-added services beyond payments like fraud prevention and data analytics.
International payments remain challenging due to multiple currencies, regulations, and settlement lags. Ripple aims to enable real-time international payments by connecting financial institutions through its decentralized network and standardized protocol.

Here are the key points on how fintech is transforming the management of households’ investment portfolios:

Robo-advisors provide automated, algorithm-based portfolio management and investment advice at low cost. They make customized investment management accessible to those without large portfolios.
Apps like Robinhood have made stock trading commission-free and more user-friendly. This facilitates retail investor participation in capital markets.
New data analytics and AI tools help construct optimized portfolios tailored to an investor’s risk appetite and goals. This improves portfolio performance.
Blockchain technology enables fractional ownership of assets like real estate. This provides individuals access to asset classes that were previously unavailable to them.
Mobile apps provide easy tracking of investments across multiple accounts and institutions. This simplifies portfolio monitoring and management for individuals.
Open banking and data sharing reduce paperwork and manual processes in managing investments. APIs enable easy consolidation of information.
Lower costs, better tools, and simpler processes are democratizing access to sophisticated wealth management. DIY investing is gaining ground over relying solely on human advisors.

In summary, fintech innovations are making investment management more accessible, affordable, and customized for individuals from all walks of life. The emerging ecosystem has tremendous potential to transform how ordinary people manage their money and wealth.

Wealth management and investment advisory services are big business, especially for wealthy households with substantial assets. Banks and other firms earn large fees by providing personalized advice and portfolio management.
Robo-advisors now offer similar services as human advisors using algorithms and rules-based investing approaches. This challenges the need for human advisors.
Robo-advisors can construct diversified, low-cost portfolios suited to an investor’s risk tolerance and goals. Consistency and low fees make them appealing despite limitations in customization.
Firms like Wealthfront and Betterment pioneered automated advisory services with low fees, allowing easy access for retail investors.
Major incumbent firms like Charles Schwab and Vanguard have now entered the robo-advisor space given its rapid growth, offering comparable services.
Though traditional advisers still dominate assets under management, robo-advisors have seen rapid growth, managing over $600 billion as of 2020.
For banks, robo-advisors represent new competition in an area that was a key profit center providing personalized wealth management services. Along with other fintech innovations, they challenge the traditional intermediary role of banks.

Here are a few potential downsides of the fintech revolution:

Increased financial instability and systemic risk - With more entities outside the traditional banking system providing financial services, regulators may struggle to monitor risks. If many small fintech lenders run into trouble at once, it could have ripple effects.
Data privacy/security concerns - Fintech relies heavily on gathering and analyzing user data. There are worries about how this data is protected and used. Breaches could expose sensitive financial information.
Job losses in traditional finance - As processes get automated and digitized, some traditional finance roles may become obsolete. This could displace workers, at least in the short-run before new jobs emerge.
Difficulties with financial inclusion - While fintech has potential to expand access, the digital divide could also exclude the elderly, less tech-savvy, rural populations from benefits.
Predatory practices - Some fintech lenders have been accused of misleading marketing, aggressive collections, and lending at excessively high interest rates to vulnerable borrowers.
Regulatory gaps - Rules and oversight haven’t necessarily kept pace with fintech innovation. This creates uncertainty and risks if appropriate safeguards aren’t in place.

So in summary, while fintech innovation creates opportunities, it also brings new risks and challenges around stability, privacy, jobs, inclusion, consumer protection and regulation that need to be managed carefully. The key is finding the right balance of enabling innovation while also putting appropriate safeguards in place.

Fintech innovations like mobile payments and digital lending platforms are providing greater access to financial services, but also raise concerns about financial stability, privacy, and regulation.
New fintech players are competing with and sometimes disrupting traditional banks, requiring adaptations in regulatory frameworks.
Digital transactions enable convenient tracking of financial behaviors, but consumers may be surrendering privacy. Companies promise to protect privacy but in reality have few restrictions on data use.
China’s social credit system ambitions raise concerns about authoritarian governments exploiting fintech data for surveillance.
Bitcoin emerged in 2008 as a decentralized digital currency built on blockchain technology. It aimed to revolutionize finance and money but has faced challenges like volatility, governance issues, and usage for illicit activities.
The future of cryptocurrencies like Bitcoin is uncertain. They highlight issues of how to regulate decentralized systems and balance innovation versus risks. Overall, fintech is transforming finance but still faces many open questions.

Here is a summary of the key points about Bitcoin and blockchain technology from the passage:

Bitcoin was created in 2008 by the mysterious Satoshi Nakamoto, who published a white paper describing a decentralized digital currency system.
The timing was opportune - trust in financial institutions was low after the 2008 financial crisis. Bitcoin aimed to eliminate the need for trusted third parties like banks.
Bitcoin relies on a public consensus mechanism called blockchain to validate transactions without a central authority. It provides pseudonymity for users.
Initially intended as a payment system, Bitcoin became seen more as a speculative store of value like “digital gold”. Its price has been highly volatile.
Bitcoin sparked a proliferation of cryptocurrencies aiming to improve on its shortcomings like high fees and price swings. But Bitcoin remains the dominant cryptocurrency.
Bitcoin’s key innovations are in solving challenges like: identifying parties, validating transactions, preventing double-spending, and providing transaction immutability. It does this through cryptographic techniques and blockchain.
The blockchain public ledger maintains the transaction history. Miners validate transactions and add new blocks to the chain through cryptographic proof-of-work.
Overall, Bitcoin and the blockchain technology behind it represent a major technological revolution in finance and transactions. The long-term impacts are still unfolding.

Here is a summary of the key points about cryptography in the context of Bitcoin:

Cryptography typically involves encryption to ensure confidentiality of messages. Bitcoin does not use encryption in this traditional sense, as account balances and transactions are public.
However, Bitcoin does utilize some cryptographic concepts: public/private key pairs, digital signatures, and hash functions. These provide authentication, integrity, and security without relying on encryption.
Public and private keys allow for digital ownership and transfer of coins. The public key identifies the owner, like a username, while the private key allows the owner to digitally sign transactions, like a password.
Hash functions generate a unique digital fingerprint for each transaction that enables verification of transaction data. This allows transactions to be stored and transmitted efficiently without compromising integrity.
Overall, Bitcoin uses transparency rather than secrecy. The innovative use of cryptographic tools like digital signatures and hash functions complements this transparency by providing authentication, integrity, and security for a public ledger-based system.
Cryptographic hash functions like SHA-256 can encode strings of characters into fixed-length hashes. This allows transaction data to be compressed into compact digital fingerprints.
Merkle trees utilize hash functions to efficiently summarize and verify the integrity of large sets of transaction data. The root hash represents the entire set of transactions.
Distributed ledger technology (DLT) maintains synchronized databases across multiple nodes in a decentralized network. This enhances transparency and security.
The Bitcoin blockchain combines public/private keys, hash functions, Merkle trees, and DLT to enable a decentralized digital payment system.
Without a central authority, Bitcoin must solve the double-spending problem and validate transactions in a decentralized way.
Bitcoin uses a distributed consensus mechanism called mining, where nodes called miners compete to validate transactions and create new blocks. This ensures transactions are verified and immutable without a central party.
New blocks contain transactions and the hash of the previous block. This links blocks together in a chain that provides an authoritative transaction record.
Mining incentivizes miners to validate transactions honestly through rewards. The first miner to solve a computational puzzle adds the new block and earns the rewards.
Bitcoin uses a decentralized digital ledger called the blockchain to record transactions. This eliminates the need for a trusted third party like a bank.
The blockchain consists of blocks of validated transactions chained together. It is maintained across a peer-to-peer network of nodes.
Transactions are validated through a “Proof of Work” protocol that requires miners to solve complex cryptographic problems using computing power. This ensures the legitimacy of transactions.
The blockchain’s transparency and decentralized structure make it tamper-resistant. Altering past records would require massive computing power to overwrite the entire chain.
New transactions are queued up and added to the blockchain in blocks approximately every 10 minutes. Each block includes a hash of the previous block to link them together.
The blockchain’s public consensus mechanism enables trust and security without centralized authority. Users can verify transactions themselves.
Double spending is prevented because the longest blockchain with the most proof of work is accepted as the authenticated public record. Rewriting would require overwhelming the rest of the network.

In summary, Bitcoin’s elegant use of decentralization, transparency, cryptographic proof of work and an immutable ledger allows digital transactions without requiring trust in any institution, thereby revolutionizing finance.

Here is a summary of the key points about Proof of Work and how it enables Bitcoin’s blockchain:

Proof of Work involves miners competing to solve cryptographic puzzles in order to validate transactions and add new blocks to the blockchain. This requires computational power.
Solving the puzzle first earns the miner a reward in bitcoin. This reward incentivizes miners to participate and provides new bitcoin into circulation.
The difficulty of the puzzles automatically adjusts based on the total computational power in the network, keeping the rate of new block creation steady at around 10 minutes per block.
The bitcoin mining reward is halved every 210,000 blocks, or roughly every 4 years, to control the supply and prevent inflation.
The blockchain’s decentralized storage across nodes, along with hash functions and Merkle trees, allows quick and efficient verification of transactions without needing to transmit full transaction data across the network.
Proof of Work and the overall blockchain design enables a decentralized, transparent, secure system for validating and recording a large volume of transactions, without needing a central authority.

You make some excellent points about the limitations of Bitcoin as a currency and medium of exchange. Here are a few key issues you highlight:

Bitcoin’s value has been highly volatile and unstable, making it difficult to rely on for routine transactions. Its purchasing power fluctuates wildly from day to day. This is very different from national currencies like the US dollar which are relatively stable.
The high transaction costs and slow processing times on the Bitcoin network make micropayments infeasible. This limits Bitcoin’s usefulness for small, frequent transactions.
Bitcoin’s fixed supply could lead to deflationary spirals if demand grows faster than supply. This could discourage spending and undermine its usefulness as a medium of exchange.
The pseudonymity of Bitcoin facilitates illegal activities like money laundering, tax evasion, and black market transactions. This contradicts the image of Bitcoin as a transparent and trustworthy currency.
Bitcoin lacks the institutional backing and legal framework that national currencies have. This makes it riskier and less accepted as a mainstream payment option.
Technical complexities around wallet security, private keys, etc. limit Bitcoin’s accessibility and usability for average users. This hampers wider adoption.

In summary, you argue that while the blockchain technology behind Bitcoin is innovative, Bitcoin itself falls short as a currency and medium of exchange due to its volatility, transaction inefficiencies, deflationary risks, pseudonymity issues, lack of institutional backing, and technical complexities. These are insightful critiques of Bitcoin’s limitations from a currency perspective.

Bitcoin and other cryptocurrencies are highly volatile and unstable in value, making them poor mediums of exchange. Their values fluctuate wildly, rising and falling dramatically over short periods.
Bitcoin transaction fees and processing times have increased significantly due to built-in limits on transaction capacity and increased congestion on the network. This makes Bitcoin impractical for small everyday transactions.
The Bitcoin network is limited to processing about 7 transactions per second due to the Proof of Work protocol. This is far too slow for a global payment system.
Cryptocurrency exchanges have been repeatedly hacked, enabling thieves to steal millions of dollars worth of cryptocurrencies. This demonstrates vulnerabilities in cryptocurrency security.
Overall, the extreme volatility, processing limitations, and security issues of cryptocurrencies like Bitcoin make them poor mediums of exchange at present. Significant improvements would be needed for cryptocurrencies to become viable replacements for conventional currencies.
Cryptocurrencies like Bitcoin and Ether are vulnerable to hacking, especially through exchanges where they are traded. This can result in major losses, as with the Mt. Gox hack.
They are also vulnerable to “majority” or “51 percent” attacks, where miners acquire over 50% of the network’s hashing power and can override the main blockchain to double spend coins. This has happened with smaller cryptocurrencies though is unlikely with major ones like Bitcoin due to the immense computing power required.
Cryptocurrencies were supposed to provide anonymity but this is partly an illusion. While transactions show only digital identities, these can be linked back to real identities when digital and real worlds intersect. The Twitter hack demonstrated how anonymity can break down.
The Bitcoin mining process requires huge amounts of computing power and electricity, resulting in major environmental damage. This undermines the decentralization and democratization originally envisioned with cryptocurrencies.
Overall, cryptocurrencies have technological vulnerabilities related to hacking, majority attacks, anonymity, and environmental impact that undermine some of their foundational principles and purported benefits.
Bitcoin mining involves solving complex mathematical problems that yield rewards in Bitcoin. This requires vast amounts of computing power and energy, but the solutions offer no real benefit to society.
Bitcoin mining was initially done on regular computers, but later shifted to more specialized hardware like GPUs and application-specific integrated circuits (ASICs) which are more optimized for mining.
Researchers estimate Bitcoin mining consumes a large amount of electricity - around 0.4-1% of global energy consumption. This is more than many small countries use and has a sizable carbon footprint.
Mining is concentrated in places with cheap electricity like China, Russia, Canada and Iceland. But it still requires constant purchasing of new hardware and causes electronic waste from obsolete equipment.
Despite environmental concerns, China dominates Bitcoin mining, taking advantage of cheap electricity and access to hardware.
Bitcoin’s mining process wastes real-world resources on hardware and electricity just to solve computational problems. This is an “environmental calamity.”

Here are a few key points about the dark side of Bitcoin:

Bitcoin enabled illegal online marketplaces like Silk Road by providing an anonymous digital payment system. Though Silk Road was shut down, Bitcoin continues to facilitate illegal transactions like drug trafficking, terrorism financing, and money laundering.
However, the share of Bitcoin transactions used for illegal activities has declined over time as its anonymity proved limited and its popularity as a speculative investment grew. Still, Bitcoin’s decentralized nature makes it appealing for illegal activities.
Bitcoin’s decentralization also means there is no recourse for user errors. If you mistakenly send Bitcoin to the wrong address, there is no way to reverse the transaction. Lost passwords are also irrecoverable, meaning massive financial losses.
The energy usage of Bitcoin mining is massive, driven by the computational power needed to verify transactions and mint new coins. This large carbon footprint undermines Bitcoin’s image and raises sustainability concerns.
The concentration of Bitcoin ownership, with about 2% of accounts controlling 95% of Bitcoins, undercuts its image as a democratizing financial revolution. Instead, a few big players can manipulate prices.
The lack of regulatory oversight, volatility, and potential for manipulation make Bitcoin risky as an investment or asset. Its value is largely speculative and could collapse. Large price swings also limit its viability as a payments medium.

Here are the key points about crypto mania beyond Bitcoin:

Bitcoin’s shortcomings like lack of stable value, inability to scale for retail transactions, and not providing true anonymity gave rise to alternative cryptocurrencies aiming to address these issues.
An important distinction is between coins like Bitcoin that operate independently on their own platforms, and tokens that depend on other cryptocurrency platforms like Ethereum.
The proliferation of cryptocurrencies and related financial products has raised concerns about potential financial shenanigans and lack of clarity on whether existing regulations apply.
Regulators have been caught off guard and are playing catch up in figuring out how to regulate the crypto space.
Some alternative cryptocurrencies aim to maintain stable value, like by pegging to fiat currencies or commodities. But their stability mechanisms are often untested.
Other cryptocurrencies like Monero and Zcash aim to provide stronger privacy protections and anonymity compared to Bitcoin.
Ethereum enables smart contracts and decentralized applications, going beyond just payments. But it faces scaling challenges for transaction volumes.
Initial coin offerings emerged as an alternative to IPOs for fundraising, but were rife with fraud and manipulation.
The crypto space becamehome to rampant speculation, pump and dump schemes, and other financial excesses exhibiting bubble-like behavior.
Bitcoin’s flaws have led to many alternative cryptocurrencies aiming to improve on aspects like consensus mechanisms, valuation stability, anonymity, and blockchain functionality.
Proof of Stake is a popular alternative consensus mechanism to the costly Proof of Work used by Bitcoin. It uses staked coins instead of computing power to validate transactions.
Proof of Stake has some benefits like lower costs and built-in incentives, but also drawbacks like encouraging hoarding and centralization.
Stablecoins are cryptocurrencies designed to maintain a stable value relative to fiat currencies or assets like gold. They prioritize stable valuations over decentralization.
Overall, Bitcoin alternatives try to fix issues like efficiency, stability, anonymity, decentralization etc., but no perfect solutions have emerged yet. The tradeoffs between different goals remain a challenge.
Tether is one of the earliest stablecoins designed to maintain a stable value pegged to the US dollar. However, its claims of full dollar reserves backing each Tether token are dubious.
There are concerns about Tether manipulating Bitcoin’s price during the 2017 boom. Research suggests Tether was used to artificially inflate Bitcoin prices when they were falling.
Tether faces regulatory scrutiny over its reserves, relationship with exchanges like Bitfinex, and potential market manipulation. It stopped serving US customers in 2018.
Other anonymous cryptocurrencies like Monero and Zcash aim to solve Bitcoin’s lack of true anonymity. Monero uses ring signatures and one-time addresses to hide transaction details. Zcash uses zero-knowledge proofs for private transactions.
However, research shows vulnerabilities in Monero’s and Zcash’s privacy claims. Perfect anonymity is difficult to achieve digitally. There are tradeoffs between anonymity and security.
Anonymous cryptocurrencies also raise concerns about illicit uses and present regulatory challenges despite aiming to expand financial privacy.

Here are the key points about initial coin offerings (ICOs):

An ICO is a way for a company or project to raise funds by selling cryptographic tokens. It is similar to an initial public offering (IPO), but with some key differences.
In an ICO, investors receive tokens instead of shares. The tokens are linked to the project but do not typically give ownership rights.
ICOs emerged around 2013-2014 as a funding mechanism, particularly for projects building on top of platforms like Ethereum.
Some of the largest ICOs have raised hundreds of millions or even billions of dollars, far exceeding traditional early stage funding.
ICOs are much easier to organize than IPOs, requiring far less regulatory compliance. This has led to concerns about fraud and lack of investor protection.
The ICO boom peaked in 2017-2018, with over $20 billion raised in 2018 alone. Activity has declined since then due to regulatory crackdowns and declining cryptocurrency prices.
ICOs have drawn scrutiny from regulators like the SEC, who view many tokens as unregistered securities offerings. This has led to fines in some cases.
Despite risks, ICOs allow projects to quickly raise large sums of money by tapping into the cryptocurrency community’s appetite for speculative investments.

In summary, ICOs represent an innovative but often loosely regulated way for cryptocurrency projects to raise funds that emerged during the 2017 crypto boom. While they allow projects to raise large amounts quickly, concerns persist around fraud, lack of investor protection, and regulatory compliance.

ICOs have become a major funding source for blockchain startups, raising billions of dollars. However, they are highly risky and speculative investments.
Many ICO tokens quickly lose value after the offering. For example, EOS, Dragon, and TaTaTu tokens saw sharp declines in price within months of their ICOs.
Some ICO issuers have been accused of fraud or violating securities regulations. Telegram raised $1.7 billion but was forced to return funds and pay a penalty for unlawfully selling tokens.
Investors are often enticed by the prospect of extraordinary short-term returns despite limited information to properly evaluate the investment.
ICOs have spawned other similar funding models like ETOs, IEOs, and STOs. These aim to improve on ICOs by providing more structure, oversight, and investor protections.
Overall, ICOs represent a risky but potentially lucrative way for blockchain startups to raise large amounts of capital without the need for traditional financing. However, problems like price volatility, fraud, and lack of regulation remain challenges.

Here is a summary of the key points about Libra/Diem:

In June 2019, Facebook announced plans to launch a cryptocurrency called Libra, to be managed by the independent Libra Association. Libra was intended to provide a simple global currency backed by a basket of assets.
The announcement provoked strong opposition from global central bankers and regulators who were concerned Libra could undermine monetary policy, enable money laundering, and threaten financial stability.
In response to the backlash, Facebook pivoted in April 2020, announcing changes to Libra’s design. The main changes were launching single-currency stablecoins rather than a multicurrency coin, and maintaining a permissioned rather than permissionless blockchain.
Despite the changes, regulatory pushback continued. As a result, in December 2020 Facebook changed the name from Libra to Diem in an effort to further distance the project from Facebook. However, Diem struggled to get regulatory approval and the project was eventually sold off in early 2022.
The Libra/Diem project highlights the regulatory challenges facing global stablecoin projects and the reluctance of governments to cede control over monetary systems. Despite its failure, Libra/Diem pioneered ideas that are likely to resurface as fintech innovation continues.

Here are the key points about Libra and cryptocurrency regulation:

Facebook proposed Libra, a cryptocurrency and digital payment system intended to provide affordable access to financial services globally. It faced backlash from regulators who were concerned it could threaten currencies and financial stability.
In response, Facebook revamped Libra with a scaled-back design. Libra would be backed 1:1 with reserves of stable fiat currencies, and only approved entities could validate transactions. Rules were added to prevent illicit uses like money laundering.
Libra/Diem aims to help the unbanked and facilitate cross-border payments. But its profit motives and potential to compete with national currencies raise skepticism about Facebook’s altruistic claims.
Government approaches to cryptocurrency regulation vary widely. Concerns include threats to financial stability and national currencies, illicit usage, and consumer/investor risks. But banning crypto could stifle innovation.
Libra has spurred central banks to accelerate work on central bank digital currencies (CBDCs) and improve existing payment systems.
Key regulatory issues include AML/CFT rules, consumer protection, exchange/wallet regulation, capital controls, monetary sovereignty, and systemic risks. International coordination is needed.

Here is a summary of the key points regarding consumers and considerations of financial stability in relation to cryptocurrencies:

There are concerns about widespread manipulation in the cryptocurrency market, with a small number of “whales” potentially able to influence prices. This is more of an issue for smaller, less liquid cryptocurrencies.
Regulatory approaches vary, with some countries banning or limiting cryptocurrencies, others taking a passive tolerance approach, and some trying to develop frameworks to regulate them. The uncertainty around regulation can stifle innovation.
In the U.S., oversight is fragmented across different agencies like the IRS, FinCEN, SEC, and CFTC. This patchwork approach risks regulatory gaps.
Issues like tax evasion, money laundering, investor protection and financial stability implications are considerations for regulators.
U.S. industry groups have advocated for more oversight to build confidence, reduce uncertainty and encourage investment, even though they may protest specific regulations.
The SEC has taken enforcement actions against many unregistered ICOs and other crypto-asset fraud, exerting its authority when securities laws apply.

In summary, key concerns around cryptocurrencies relate to manipulation, illicit use, consumer protection and systemic implications, but regulatory approaches remain uneven. Establishing appropriate guardrails while enabling innovation is a challenge.

Here are the key points:

The CFTC declared virtual currencies like Bitcoin to be a “commodity” subject to its oversight, but its jurisdiction is limited mainly to derivatives markets. It has little authority over cryptocurrency spot markets except in cases of fraud or manipulation.
Some states like Ohio and New York have taken their own initiatives to regulate cryptocurrencies. Ohio briefly accepted tax payments in Bitcoin before suspending the program. New York created the BitLicense regulatory framework requiring licensing for crypto companies.
The regulatory landscape is fragmented, with different agencies claiming limited or partial jurisdiction. There are gaps in regulation and oversight, especially for investor protection.
Cryptocurrencies are borderless by nature, so greater regulatory coordination at the national and international level is needed.
Regulators have largely tried to fit cryptocurrencies into existing frameworks rather than developing new statutes and standards tailored to their novel aspects.
The decentralized finance (DeFi) movement aims to provide financial services like lending and borrowing in a decentralized way using blockchain technology. It promises benefits like fault tolerance, attack resistance, and open access, but also carries risks.

Here are a few key points on the potential drawbacks and limitations of decentralization in DeFi:

Scaling limitations - The decentralized and transparent nature of blockchains like Ethereum can make scaling DeFi applications to rival traditional finance difficult. There are limits to transaction speeds and throughput.
Attack vulnerabilities - DeFi applications have been shown to be vulnerable to attacks like front-running bots that can exploit users. The decentralized nature makes preventing such attacks challenging.
Governance challenges - Decentralized systems lack central authorities to report issues to or enact governance changes. This was demonstrated when researchers first had to exploit vulnerabilities they found before issues could be addressed.
Opaque risk - DeFi’s transparency does not necessarily make the system structurally sound or protect against skewed incentives/expectations. There can still be systemic risks that are not apparent.
Regulation - Decentralization does not mean no regulation. DeFi will likely still intersect with formal finance and face regulatory scrutiny, especially as it scales. Compliance mechanisms have limitations.
User risks - DeFi users may not fully understand the risks of novel financial products created through “permissionless composability.” Transparency alone does not guarantee soundness.
Unknown risks - As a new technology, some risks of decentralization in finance may not be clear until issues or failures occur. Radical transparency is not a cure-all.

So while DeFi has exciting potential, decentralization also comes with challenges around governance, regulation, security, and managing systemic risks or unanticipated failures. A measured approach is warranted.

Money has undergone major transformations throughout history, from cattle and metals to paper currency and now potentially digital currencies. Central banks have taken over issuing fiat currencies with no intrinsic value.
Cryptocurrencies like Bitcoin and developments in fintech are spurring the next potential transformation - central bank digital currencies (CBDCs).
A CBDC is simply a digital form of a central bank’s fiat currency. It could complement or replace physical cash.
Central banks have varying motives for issuing CBDCs - from maintaining monetary sovereignty and financial stability, to improving payments systems, to responding to cryptocurrencies.
Major considerations around CBDCs include impacts on monetary policy, financial stability, privacy, and the role of central banks.
CBDCs could make monetary policy more powerful through greater traceability of money flows, but also raise financial stability risks if people switch deposits to CBDCs very quickly.
Privacy is a major concern with CBDCs that needs to be balanced against tracing illegal activities. The role and power of central banks also may expand with CBDCs.
Overall CBDCs have major implications that central banks must evaluate carefully before implementation. The technology promises benefits but also risks that require judicious management.

Here is a summary of the key points about central bank digital currencies (CBDCs) from the provided text:

CBDCs come in two main forms: wholesale and retail. Wholesale CBDCs are digital tokens used for interbank transactions, while retail CBDCs would be accessible to households and businesses.
Wholesale CBDCs represent a technological improvement to existing digital central bank reserves used by commercial banks. They provide efficiency gains in payment systems.
Retail CBDCs could take the form of e-money (value-based, like a digital wallet) or account-based (where individuals/businesses have CBDC accounts at the central bank).
Retail CBDCs could also take the form of official cryptocurrencies, issued by a government agency on a permissioned blockchain. These would not necessarily be equivalent to the fiat currency.
Motivations for retail CBDCs include: providing a backup payment system in case privately-managed systems fail; promoting financial inclusion; reducing counterfeiting.
For central banks, the main drivers appear to be having a resilient payments system and broader financial inclusion. CBDCs may help governments raise tax revenues too.
Overall, retail CBDCs represent a major transformation in the form of money and payment systems, compared to the already-digital wholesale CBDCs.
Central banks are considering issuing central bank digital currencies (CBDCs) for several reasons, including:

Promoting financial inclusion - CBDCs can broaden access to digital payments and financial services, especially for unbanked populations. This motivation is more relevant in developing countries.
Preserving monetary sovereignty - As private digital currencies and payment systems grow, central banks want to maintain their ability to implement monetary policy and provide a safe public payment system.
Expanding monetary policy tools - A CBDC could give central banks greater ability to influence interest rates and credit conditions through adjustable interest rates and lending facilities. This expands their monetary policy toolkit.
Responding to the decline of cash - CBDCs can serve as a digital complement to physical cash. This provides the benefits of digital payments while preserving a central bank-issued currency available to the public.
Increasing payment system resilience - CBDCs can reduce reliance on consolidated private payment providers and infrastructure. This mitigates systemic vulnerabilities.
Improving payment efficiency - CBDCs can enable faster and cheaper payments, especially cross-border.

In summary, central banks have valid motives for issuing CBDCs to preserve their roles in money and payments, expand their policy tools, promote financial inclusion, and improve the safety and efficiency of payment systems. However, the benefits must be weighed against the risks.

Since the global financial crisis, central banks have had to develop unconventional monetary policies beyond just adjusting short-term interest rates, in order to influence long-term interest rates which matter more for economic growth and inflation.
In difficult economic times, central banks may want to push real interest rates into negative territory to encourage spending and investment. However, they face challenges in doing so due to the “zero lower bound” - cash offers a 0% rate of return, so interest rates can’t go much below zero.
An account-based CBDC could remove this constraint by allowing central banks to impose negative nominal interest rates on digital currency balances. This would discourage saving and encourage spending even when facing deflation.
However, cash would likely coexist with CBDC, so the zero lower bound would still be a limitation, just less so. The ability to push interest rates deeply negative is uncertain.
Overall, a retail CBDC creates more flexibility for monetary policy in severe recessions, but the benefits should not be overstated given cash will remain and economic conditions determine how much negative rates can realistically be imposed.
A central bank digital currency (CBDC) could help make monetary policy more potent, especially in difficult economic times when growth is collapsing and deflation looms.
With a CBDC, central banks would not be constrained by the zero lower bound on interest rates. They could institute negative interest rates by reducing balances in CBDC accounts. This could encourage spending and investment.
In a cashless economy with only CBDC, negative rates would be more feasible since people cannot just hold cash instead. However, negative rates can have downsides like hurting savers.
A CBDC would also facilitate “helicopter drops” of money directly to people’s accounts, providing stimulus to boost spending. This is easier than mailing checks.
CBDC accounts make stimulus payments faster, more efficient, and more targeted to those in need. This was demonstrated during COVID-19 relief programs.
CBDC can also help central banks manage high inflation by offering high interest rates on the accounts, incentivizing saving over spending.
However, conventional tools usually work better for fighting inflation. The biggest advantages of CBDC are in fighting recessions and deflation.
There is a risk of blurring fiscal and monetary policy if central banks make helicopter drops. Major policy decisions should still reside with elected officials.

There are advantages to a central bank digital currency (CBDC) beyond its implications for monetary policy. A key benefit is that it could help deter criminal activities and money laundering that rely on the anonymity of cash transactions. Eliminating cash makes it harder for criminals who don’t trust each other to use an anonymous medium of exchange. Compliance with anti-money laundering laws has been a major challenge globally, and CBDCs could assist these efforts by giving central banks more oversight and control, even as illicit activities shift to decentralized systems.

Evidence from Sweden shows that as cash use declined dramatically, cash-related crimes like bank robberies and taxi robberies fell sharply. However, non-cash crimes persisted, and electronic fraud rose substantially, illustrating that eliminating cash changes the nature of crime rather than eliminating it entirely.

CBDCs could also help deter corruption in countries where bribery of officials often relies on cash payments. India’s 2016 demonetization aimed to root out corruption by invalidating high-value notes, based on the premise that large cash hoards likely came from illicit sources. A CBDC could make such transactions more traceable.

Overall, CBDCs offer significant potential benefits in tracking transactions, dissuading cash-reliant criminal and corrupt activities, and giving central banks more oversight of payment systems. But criminals find new methods, so CBDCs are not a panacea. Their advantages must be weighed carefully against risks like privacy concerns.

Cash facilitates criminal activities, corruption, and tax evasion by enabling anonymous and untraceable transactions. Replacing cash with a central bank digital currency (CBDC) would make transactions more transparent and traceable.
Demonetization in India aimed to curb corruption but likely only affected petty corruption as corrupt officials kept wealth in offshore accounts. A CBDC could help reduce petty and large-scale corruption by making bribes traceable.
The shadow economy, made up of legal but unreported economic activities, costs governments tax revenue. High tax rates and weak enforcement encourage shadow economies.
The shadow economy averaged 10% of GDP in major advanced economies in 2018, with higher shares in countries like Greece and Italy. Lost tax revenues are estimated at 1-4% of GDP.
Policies that reduce cash usage, like wage deposits to bank accounts and mandatory electronic POS for businesses, shrink the shadow economy and raise tax revenues by 2-3% of GDP.
Replacing cash with a traceable CBDC would cast light on the shadow economy by leaving a digital trail, acting as a deterrent even if some anonymity remained.
A CBDC could help reduce the size of the shadow economy and increase tax revenues by bringing more activities out of the shadows and into the formal economy. However, it alone will not eliminate the shadow economy entirely.
CBDC could reduce the costs and risks associated with counterfeiting physical currency. However, it introduces new risks like electronic counterfeiting through hacking.
CBDC may increase seigniorage profits for central banks by reducing the costs of issuing currency compared to physical notes and coins. But the impact depends more on demand for central bank money and interest rates than production costs. In any case, seigniorage revenues are small for most central banks.
CBDC could allow governments to attach conditions or restrictions to digital currency transfers to achieve social goals. However, this raises concerns about privacy and government overreach. Overall, the benefits for governments from CBDC appear modest compared to risks and tradeoffs.
Governments often provide essential goods like food at subsidized prices to help the poor and middle class. However, this can reduce incentives for producers to supply these goods.
To address this, governments guarantee minimum prices for producers. But these policies are expensive and lead to corruption in rationing systems.
India has moved towards just providing cash transfers, which is cheaper and more efficient. But there are concerns recipients may misuse the money.
Digital central bank currency could solve this by allowing government to designate money for certain approved uses only. However, this could also enable authoritarian social engineering.
There are also technical issues, like different units of digital currency having different values based on usage restrictions. This could undermine confidence in the currency.
COVID-19 led to concerns about virus transmission via cash. Some central banks took steps like disinfecting or quarantining cash. This illustrates physical cash has some disadvantages compared to digital.
Downsides of CBDCs include possibly stifling private sector innovation, expanding central bank reach, and enabling greater government surveillance and control.

In summary, CBDCs offer potential benefits but also pose risks related to increased government control over money and payments. Careful design is needed to strike the right balance.

Central bank digital currencies (CBDCs) raise questions about the appropriate role of the state in the economy. There are concerns about the state taking over functions typically done by the private sector.
Interest-bearing CBDC accounts could threaten the viability of commercial banks by putting the CBDC in direct competition with bank deposits. However, most central bankers are unlikely to offer interest on CBDCs.
Even without interest, the availability of CBDC accounts could trigger bank runs in times of financial panic, as people move their deposits to the perceived safety of the central bank. This could destabilize the banking system.
CBDCs may enable greater government surveillance and reduce privacy, as digital transactions are inherently traceable. This is at odds with public preferences for privacy.
Preserving cash is important to maintain individual liberty and privacy. Cash provides anonymity and enables activities that might otherwise be legally dubious. It also appeals to psychological aspects of money in ways digital forms do not.

In summary, while CBDCs offer potential benefits, they also pose risks related to disintermediating banks, enabling government overreach, and reducing privacy and liberty. There are valid arguments for preserving paper cash despite the inevitability of digital transformation.

Here are the key points:

There are arguments that restricting cash could hurt economic activity that is currently underground but welfare-enhancing, like street vendors in India. However, measures to formalize these activities through tax and regulatory reform may be better solutions.
Some libertarians argue cash allows evasion of harmful laws, indirectly enabling their repeal. But providing an instrument like cash to undermine laws could be problematic.
Eliminating cash may not curb crime but rather change its nature, with organized crime creating illicit debt instruments. This could suck innocent people into aiding crime.
Ditching cash could disadvantage the poor, unbanked, and vulnerable like domestic abuse victims, who rely on its anonymity and widespread acceptance. Some jurisdictions have banned cashless stores for this reason.
Cash is still useful as a backup in disasters when digital payments fail. Some survivalists recommend keeping some at home for this purpose.
Overall, there are nuanced arguments on both sides regarding cash restrictions. Benefits like reducing tax evasion and crime have to be weighed against potential burdens on lawful economic activity, the poor, and personal freedom and privacy.

Here are the key points:

Cash provides anonymity and confidentiality in transactions, which would be lost with digital payments and CBDCs. This raises privacy concerns.
CBDCs would allow governments to monitor all transactions, enabling greater financial surveillance and control. This has Orwellian implications.
However, cash also facilitates illicit activities like money laundering, terrorism financing, and tax evasion due to its anonymity. CBDCs would help curb these.
There are tradeoffs between privacy and the ability to prevent criminal activities that need to be balanced carefully when considering CBDCs.
Advanced encryption and design features like anonymity vouchers could help preserve privacy with CBDCs to some extent. But risks remain.
Ultimately there are legitimate concerns about the loss of privacy and increased government surveillance enabled by CBDCs compared to cash. These Orwellian aspects need to be considered seriously.

The key tension is between privacy and preventing crime/tax evasion. CBDCs enable more financial control and oversight, but at the cost of lost privacy. There are important tradeoffs at stake that have profound implications for personal freedom and empowering governments.

Cash provides anonymity in transactions, which would be lost with a central bank digital currency (CBDC) since all digital transactions are traceable. This eliminates anonymous use of central bank money.
Central banks are not obligated to provide an anonymous payment mechanism, though the loss of privacy with a CBDC raises legal and social issues around civil liberties.
An authoritarian government could use the surveillance capabilities of a CBDC to suppress dissent and protest. A CBDC could become an instrument of political and social control.
Even in a democracy, a government could use a CBDC’s programmability for questionable social engineering purposes, like blocking purchases of certain goods.
There are complex tradeoffs between efficiency and individual liberties with a CBDC. Each country must develop a societal consensus on the privacy implications.
While these concerns may seem paranoid, the notion of a government perverting a neutral digital currency into a tool of control has precedents, as with social media platforms spreading misinformation or subverting democracy.
There are often peculiarities in the legal definitions of what constitutes “legal tender” in different countries. In the UK, Royal Mint coins and Bank of England notes are legal tender, but in Scotland and Northern Ireland only Royal Mint coins have this status.
In the eurozone, only euro banknotes and coins are considered legal tender. Retailers can refuse other forms of payment unless there are good faith reasons. The European Court of Justice ruled in 2020 that euro cash must be accepted unless the parties had agreed otherwise.
In Sweden, the central bank law states cash is legal tender but commercial law allows this to be overridden by agreement between parties. In principle, a merchant can refuse cash by posting a sign stating they only accept credit cards.
China’s central bank recently cracked down on businesses refusing to accept cash, arguing it damages the legal status of the renminbi. This reversed a trend of companies like Alibaba promoting cashless payments.
Laws and government policies play a large role in determining the use of physical versus electronic payments. Any central bank issuing a CBDC will need to pay careful attention to the legal framework.
A number of central banks are exploring CBDCs. Tunisia’s e-Dinar from 2015 is sometimes described as the first CBDC, although it lacked some key features. Ukraine trialed an e-hryvnia pilot. The Bahamas has issued the sand dollar, the first live CBDC.
Ecuador launched an electronic money system called Dinero Electrónico in 2014-2015, but it failed to attract many users due to lack of trust in the government and central bank.
Uruguay piloted an e-peso program in 2017 as an electronic platform for its currency. It was deemed a success technically and for financial inclusion, though user balances and transactions were limited.
The Bahamas introduced the sand dollar, the world’s first account-based CBDC, in late 2019. It is equivalent to the paper Bahamian dollar and intended to expand access to digital payments.
China has run various pilots as it prepares to launch the digital yuan, working with major companies like JD.com. It aims to eventually replace a portion of physical cash in circulation.
Sweden’s Riksbank initiated an e-krona project in 2017 to determine if an e-krona would be feasible as use of cash declines. No decision made yet on issuance.
The examples illustrate different design choices and challenges for CBDCs, like technical feasibility, financial inclusion, and public trust and adoption. Many central banks are now exploring CBDCs tailored to their economies.

Here is a summary of the key points about the sand dollar and e-CNY digital currencies:

Sand Dollar (Bahamas)

Intended for domestic use only, but can be exchanged for foreign currency like paper money
Aims to improve financial inclusion, payment system efficiency, and access to financial services
Costs borne by central bank, benefits accrue to government/society
Limits on holdings to mitigate risks of bank runs or disintermediating banks
Interesting test case on whether easy digital access affects circulation of foreign currencies

E-CNY (China)

Motivated by decreasing use of cash, real-time monetary data collection, renminbi internationalization
Two-tiered system: PBOC issues, banks distribute to users
Organized as “one coin, two repositories, three centers” for issuance, distribution, authentication
Stored in digital wallets provided by banks on centralized ledgers
No interest paid unless deposited in bank account
Allows anonymous transfers to promote use, but PBOC can track for oversight
Aims for high transaction capacity on multiple networks
China has introduced the e-CNY, a digital version of its currency, in selected cities as a pilot program. It functions through smart contracts but is intended mainly as a digital replacement for cash rather than having additional functionality.
All merchants in China are required to accept e-CNY since it is legal tender. It can be used across different payment apps and has near-field communication capability for offline transactions.
The e-CNY rollout allows identification of problems before nationwide implementation. Over 80 patents have been filed related to e-CNY supply adjustments and integration with bank accounts.
Sweden has also developed an e-krona to handle declining cash use. After analysis and debate, it launched a pilot CBDC program in 2020.
The e-krona uses a two-tiered model where the central bank provides digital currency to banks/participants who distribute it to end users. It is intended as a backup payment system.
The pilot e-krona leverages distributed ledger technology for transactions separate from the main payment system. It is centralized but provides robustness and scalability.
The Riksbank’s proposed e-krona digital currency project faced initial criticism and pushback, especially from the banking industry which feared competition. For example, the CEO of the Swedish Bankers’ Association warned the e-krona would set the central bank in direct competition with commercial banks.
Over time, resistance has faded as the e-krona’s design became clearer and banks felt less threatened, given its two-tiered structure involving commercial banks.
The Riksbank emphasized the e-krona is ultimately a political decision, not just a technical one.
Some countries like Iran, Russia and Venezuela explored state-backed cryptocurrencies as a way to evade US sanctions or raise revenues without inflation.
In 2017, Russia announced plans for a cryptoruble but has not launched it.
In late 2017, Venezuela launched the Petro cryptocurrency backed by oil, gas, gold and diamonds, in an unsuccessful attempt by President Maduro to restore economic stability.
Major concerns around state-issued cryptocurrencies include their reliability, widespread acceptability, and inability to truly avoid sanctions or raise revenues without inflationary consequences.
Venezuela launched the Petro in 2018 as the world’s first official cryptocurrency backed by the government. It was intended to raise revenue, circumvent U.S. sanctions, and avoid hyperinflation, but has had limited success.
The Marshall Islands planned to launch its own cryptocurrency called the Sovereign (SOV) in 2018 to address challenges with its banking infrastructure and lack of a national currency. However, the IMF and U.S. raised concerns, and the SOV has yet to launch.
The U.K.’s Royal Mint tested a gold-backed cryptocurrency called Royal Mint Gold in 2017. It enabled investors to hold gold without taking physical possession. However, it was not widely adopted and shut down in 2019.
Sweden’s central bank began testing an e-krona in 2017 to address declining cash use. It aims to create a digital complement to cash. The e-krona is still in the research and testing phase.
The Eastern Caribbean Central Bank launched a central bank digital currency called DCash in 2019 for bank-to-bank transactions. It aims to improve regional payments and doesn’t replace cash.

In summary, a few advanced and developing economies have experimented with government-backed cryptocurrencies for various purposes, with mixed success so far. The technology shows promise but also faces regulatory, technical, and adoption challenges.

Here is a summary of the key points about wholesale CBDC:

While most attention has focused on retail CBDCs, some advanced economies like Canada and Singapore have taken the lead in developing wholesale CBDCs.
Wholesale CBDCs are digital tokens provided to banks in exchange for reserves, to facilitate more efficient interbank payments and settlement.
Canada’s Project Jasper showed wholesale CBDC could enable more efficient queueing and netting of interbank transactions. A Corda-based system allowed banks to economize on liquidity and collateral.
Singapore’s Project Ubin developed prototypes for decentralized interbank payments using DLT, while preserving transaction privacy.
Singapore also collaborated with its stock exchange to develop delivery-versus-payment settlement of tokenized assets, improving efficiency and reducing settlement risk.
These wholesale CBDC projects aim to reduce risks and costs of domestic and cross-border payments and securities settlement. Though still in early stages, they suggest DLT could bring meaningful improvements to wholesale banking and financial market infrastructures.

Here is a summary of the key points about cross-border payments:

Cross-border payments are inherently complex, involving multiple currencies, institutions, and regulations. This makes them typically slow, expensive, and opaque.
The traditional correspondent banking model relies on intermediary banks to facilitate foreign exchange and transfers between banks in different countries. However, the number of active correspondent banks is declining even as cross-border payment volumes rise.
New technologies like blockchain/DLT could help address issues in cross-border payments by better synchronizing transactions and reducing settlement risks.
Some central banks have tested using wholesale CBDCs for cross-border payments. The Bank of Canada and Monetary Authority of Singapore showed DLT systems can connect via smart contracts without trusted intermediaries.
However, scaling CBDCs for international payments raises governance challenges. Central banks want control over currency issuance and may not fully trust other nations’ systems.
Key open questions remain around governance, interoperability, and risks if these systems are scaled up across borders and currencies. But projects like Aber show central banks remain interested in using digital currencies for international settlements.

Here are the key points about the international monetary system and the dominant role of the US dollar:

The international monetary system connects countries’ financial markets and currencies through exchange rates, capital flows, and rules/institutions like the IMF.
Many are dissatisfied with the current system. International payments are costly and inefficient. Developing economies feel rules favor advanced economies.
The US dollar is the dominant international currency for trade invoicing, payments, and reserves. This gives the US outsized influence compared to its share of global GDP.
Much of the world sees the dollar’s dominance as problematic. Fluctuations in the dollar and Fed policies affect other economies, sometimes negatively.
When the Fed cuts rates, money flows out of developing countries, causing crises. When it raises rates, dollar appreciation hurts their exports.
The euro, renminbi, and IMF Special Drawing Rights have not challenged dollar dominance. Cryptocurrencies also remain niche.
But new technologies like CBDCs and stablecoins could reshape cross-border payments and international finance over time.
The US dollar’s status as the dominant global reserve currency allows the US to borrow cheaply from abroad to finance trade deficits. This “exorbitant privilege” has provoked complaints from other countries.
The dollar-centric financial system also gives US financial sanctions outsized impact, as cutting a country off from dollar transactions is hugely disruptive. This allows the US to wield the dollar as a geopolitical weapon.
The SWIFT messaging system for cross-border payments is subject to US influence and pressure, such as blocking countries under sanctions. This has spurred countries like China and Russia to develop alternatives.
SWIFT is also exposed to cybersecurity risks and lacks the speed of new payment systems based on cryptocurrencies or stablecoins. This technological competition threatens SWIFT’s dominant position.
Broader questions remain about whether new financial technologies could catalyze a shift away from dollar dominance, either by boosting rival currencies like the renminbi or by facilitating transactions in non-traditional units like cryptocurrencies.
Such a shift, if it occurred, could have major implications for the global financial system and the geopolitical balance of power. But the extent of change remains uncertain.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) has long dominated international payment messaging between banks. It is vulnerable to disruption from new financial technologies like blockchain and digital currencies.
Many countries are developing alternatives to SWIFT to avoid reliance on the dollar-based system and vulnerability to U.S. sanctions. Examples include China’s CIPS, Russia’s SPFS, and the EU’s INSTEX.
New financial technologies like blockchain could make cross-border payments faster, easier, and more transparent, reducing the need for correspondent banking and legacy messaging systems like SWIFT.
As emerging markets grow, their currencies are likely to be used more for direct trade and investment, reducing the need for vehicle currencies like the U.S. dollar.
With less reliance on vehicle currencies, more bilateral exchange rates between emerging market currencies will become relevant. New financial instruments may be needed to hedge the risks from exchange rate volatility.
Overall, legacy systems like SWIFT and the primacy of the U.S. dollar as the dominant global currency face disruption from new technologies. This could lead to a more multipolar global financial system. But the pace and extent of change remains uncertain.
New financial technologies could allow for greater integration of global financial markets by making it easier and cheaper for capital to flow across borders. This could unlock new sources of financing for firms, especially smaller firms in developing countries.
For savers around the world, fintech could enable greater portfolio diversification by facilitating low-cost investments in foreign assets. This allows for better risk management.
However, the basic drivers of capital flows, such as expected returns and risks, are unlikely to change. Fintech mainly reduces explicit and implicit barriers to cross-border finance.
If fintech succeeds in reducing frictions, it could set off a new wave of financial globalization, generating benefits through more efficient global allocation of capital. But this is unlikely to reach the same scale as the pre-2008 period.
Overall, fintech has the potential to allow small firms and ordinary savers to access global capital markets as large corporations already do. This could support growth and risk management. But the magnitude of the impact remains uncertain.
Retail investors tend to hold domestic stocks rather than diversifying globally, missing out on potential improvements to their risk-return profile through international diversification. Emerging fintech could facilitate cross-border capital flows, enabling broader access to global markets. However, this also poses risks.
Volatile capital flows amplify financial cycles and transmit shocks rapidly across countries, especially impacting smaller economies. Monetary policy spillovers from major economies like the US impact emerging markets, even if their policies are sound. More frictionless capital flows could worsen these effects.
Most advanced economies have eliminated capital controls, but emerging markets use them to limit volatile flows. However, these are increasingly porous due to financial globalization and innovation. China tried restricting outflows in 2016 but money still leaked out via channels like Bitcoin. Controls appear futile.
The IMF recognizes benefits of open capital accounts but also risks. It advocates macroprudential policies and cooperation between source and recipient countries to manage volatile flows. New fintech could require rethinking the policy toolkit.
Countries like China and Greece have experienced significant capital flight through cryptocurrencies as citizens seek to avoid capital controls and economic crises. Despite bans on crypto exchanges, billions have still flowed out through crypto channels.
Other emerging economies like India and Iran have also implemented crypto bans or restrictions to limit capital outflows, with mixed success. Governments are struggling to control crypto-enabled capital flight.
The dominance of the U.S. dollar in global finance has provided the U.S. with enormous power, but has also bred resentment from other countries. Alternatives like the euro have failed to displace the dollar so far.
U.S. officials worry the overuse of sanctions and conditioning dollar access on adhering to U.S. foreign policy could eventually drive countries away from the dollar system.
Cryptocurrencies are unlikely to challenge reserve currencies like the dollar as stores of value soon, but could start displacing the dollar’s role in cross-border payments as the technology matures. This could gradually erode the dollar’s prominence in global finance.
The dollar’s status as the dominant global reserve currency is not seriously threatened in the foreseeable future. Its depth, liquidity, and institutional backing remain unmatched.
However, there are some potential challenges emerging, including from cryptocurrencies and stablecoins. But their ability to disrupt the dollar’s supremacy, particularly as a store of value, is limited.
There is a desire among some policymakers and officials globally to reduce the dollar’s dominance. This has converged with new financial technologies like cryptocurrencies and stablecoins.
Stablecoins tied to existing currencies like the dollar could gain traction for payments but are unlikely to transform the balance of power among major reserve currencies.
Alternatives like a synthetic hegemonic currency proposed by Mark Carney could possibly dampen the dollar’s influence if widely adopted. But displacing the dollar remains a very tall order.
In summary, the dollar’s status is secure for now but faces some innovative challenges. Significant change to the global monetary system is unlikely in the short-term, but increased competition between currencies, especially for payments, is quite plausible.
There have been proposals for a single global currency or a special international currency to facilitate trade and reduce exchange rate volatility. However, there are significant obstacles to implementing such a currency in practice.
A key challenge is that countries would have to give up monetary policy autonomy and the ability to adjust their exchange rates. This could impose costs during economic shocks.
International cooperation would be needed to implement a global currency, but is currently lacking. Major economies also face issues like the eurozone’s internal divisions that could destabilize a joint currency.
Smaller and less liquid financial markets outside the US would make transacting in a new currency costlier. It’s unclear who would bear these costs.
The IMF’s Special Drawing Rights (SDRs) already exist as a reserve asset and are a potential building block for a global currency. However, SDRs currently play only a minor role and are not widely used for transactions.
Overall, while a single global currency has some theoretical benefits, significant practical hurdles remain regarding feasibility, costs, incentives, and securing international cooperation. More limited steps like expanding SDRs appear more viable currently.
Special drawing rights (SDRs) are a form of digital currency issued by the IMF. Increasing SDR issuance can provide liquidity to countries in need, but the distribution favors richer countries.
Making the SDR a true global currency would require major governance changes at the IMF, which currently gives greater voting power to advanced economies like the US.
The US has veto power over major IMF decisions like SDR issuance due to its large voting share. This was demonstrated when the US blocked a new SDR issuance in 2020 despite the pandemic downturn.
China’s progress in making the renminbi a rival to the US dollar has stalled since 2015 due to China’s slowing economy, unstable markets, and tightened capital controls.
China’s central bank digital currency (CBDC), the e-CNY, may eventually boost cross-border use of the renminbi. But in the near-term its scope will be limited to domestic payments.
Significant hurdles remain for the renminbi to truly challenge the dollar’s dominance. This includes China’s closed capital account, lack of market reforms, and the dollar’s entrenched status globally.
Central banks have faced increasing challenges in conducting monetary policy since the 2008-2009 financial crisis, as traditional tools like interest rate cuts became less effective. They turned to unconventional policies like large-scale asset purchases, with unclear impacts on growth and inflation.
New financial technologies like cryptocurrencies are complicating central banking further by changing the nature of money and financial market structures. The connections between central bank actions and economic outcomes may become even more uncertain.
Central banks have taken on broader roles beyond traditional monetary policy, like financial stability monitoring and climate change considerations. This increases their policy burdens and risks exposing them to more criticism if policies fall short of expectations.
Central bank independence could come under threat as they take on more roles and face heightened scrutiny. Their operational autonomy and insulation from short-term political pressures may be compromised.
Overall, central banks face a challenging road ahead with their expanding mandates and unconventional policy tools in a rapidly evolving financial landscape. Their roles and effectiveness could diminish if unable to adapt policies and communications for the new environment.
Central banks have expanded their mandates beyond just targeting inflation to also include goals like maximum employment and financial stability. This recognizes the interconnectedness of monetary policy, the real economy, and the financial system.
Central banks now have two main tools - monetary policy and regulatory/macroprudential policies. Using both together can help achieve their dual objectives of price stability and financial stability.
New challenges are emerging related to monetary policy implementation, transmission, and financial stability in a changing technological landscape.
A central bank digital currency (CBDC) could provide new options for monetary policy implementation like negative interest rates and helicopter money drops. But it also raises questions around disintermediating banks and challenges for financial stability.
Overall, central banks face a complex balancing act with dual mandates and multiple tools. New technologies like CBDCs provide opportunities but also risks that need careful consideration.
A central bank’s ability to expand or shrink CBDC balances can help control the money supply, even if it mainly relies on interest rates to conduct monetary policy. This is a reason for central banks to consider issuing CBDCs rather than letting central bank money disappear.
However, the ease of increasing/decreasing the CBDC supply could undermine confidence in it as a “safe asset” if its value is seen as susceptible to erosion through inflation or outright reductions. This could lead to substitution into other assets.
Central banks emphasize the cash-like features of CBDCs to build confidence. But this creates a dilemma for monetary policy, as seen in Sweden’s consideration of an e-krona. A non-interest bearing CBDC would limit the effectiveness of negative interest rates.
In general, how monetary policy affects the economy is complex and uncertain. Introducing a CBDC by itself shouldn’t change monetary policy transmission much. But substitution between commercial bank and central bank deposits could have some influence.
One key mechanism is the banking channel, as changes in central bank rates affect commercial bank deposit/lending rates and economic incentives. But the precise effects are hard to pin down and depend on circumstances. New technologies like DLTs could dilute this channel.

Here is a summary of the key points regarding a central bank’s ability to influence interest rates through its control of short-term policy rates:

Central banks like the Federal Reserve can influence other interest rates in the economy through their control of short-term policy rates such as the discount rate and Fed funds rate. These are rates on overnight loans between banks and the Fed.
If banks no longer used central bank reserves for daily settlement and managing reserve positions, they would become less sensitive to changes in the policy rates set by the central bank.
This could diminish the central bank’s influence over aggregate demand and inflation, even if it retains other monetary policy tools like open market operations.
The Bank of Canada provides a concrete example, as its main policy tool is the target for the overnight interest rate comparable to the Fed funds rate target. If banks in Canada created their own settlement system bypassing the central bank’s system, this policy tool would lose effectiveness.
More broadly, the proliferation of nonbank and informal financial institutions may be less sensitive to policy rate changes than traditional banks, further complicating monetary policy transmission for central banks.
As financial systems evolve, central banks will have to gra grapple with the issue of whether conventional monetary policy channels will continue working as before.
Financial regulators have traditionally focused on regulating banks, but fintech firms and commercial enterprises are playing larger roles in financial intermediation, creating blind spots.
The growth of China’s Ant Group into a major provider of financial services highlights this issue. Ant grew quickly with limited regulation as it provided services like payments and microloans. This created financial stability risks.
Other examples like Wirecard’s collapse despite oversight also highlight gaps in regulating non-bank financial institutions.
If banks decline and fintechs/non-banks grow, central banks would find it harder to provide liquidity support in crises as they lack direct links to non-banks.
New players in finance need appropriate oversight to avoid regulatory blind spots and ensure financial stability. Central banks may need new tools to support non-banks in crises.
Technology is making cross-border financial flows easier, presenting challenges for regulation and supervision as the domiciles and boundaries of financial institutions become unclear. This amplifies cross-border financial stability risks.
Some countries may find their domestic payment systems overrun by foreign platforms, raising concerns about loss of control. But trying to block such systems could be counterproductive if they offer better services.
Technology provides more financial information, which can improve stability if it reduces information gaps. But information overload could worsen volatility if investors cannot separate signals from noise.
Lower barriers to entry mean smaller players can compete more easily, which could spread risk but require vigilant regulation to avoid being captured by large players.
Decentralized systems may increase efficiency and level the playing field, but centralized systems controlled by large players could develop outside regulatory purview.
Overall, while technology assists some areas of regulation, frameworks will need to evolve rapidly to keep pace with shifting market structures and new risks.

Here is a summary of the key points regarding decentralized finance (DeFi) and regulating financial innovation:

Even if finance becomes decentralized, that does not necessarily mean regulators can relax, as it raises questions about whether decentralized systems will have adequate checks and balances without government oversight.
Decentralized finance may transform financial system risks from big institutions that can create systemic issues to smaller institutions where a loss of confidence in one could spread more widely.
Network effects could still result in a few dominant players in DeFi before antitrust regulations can respond. Public digital infrastructure that allows open competition may help address this.
Regulators face challenges balancing innovation that brings benefits with unfamiliar risks from new products, services, and business models.
Regulatory sandboxes allow controlled testing of innovations before full regulations are in place. This helps regulators evaluate new technologies while protecting against systemic risks.
Sandboxes let firms test ideas without immediately facing regulatory consequences. The UK, Singapore, and other countries have implemented regulatory sandboxes.
The US was slow to adopt sandboxes, so states like Arizona enacted their own to enable financial innovation testing. Sandboxes allow assessment of risks and benefits of innovations.
By mid-2020, several other U.S. states had followed Arizona’s lead and created their own regulatory sandboxes, including Hawaii, Kentucky, Nevada, Utah, Vermont, West Virginia, and Wyoming.
In July 2018, the U.S. Treasury Department released a blueprint supporting regulatory sandboxes to encourage financial innovation. Treasury Secretary Steven Mnuchin endorsed sandboxes as important for economic growth.
However, some U.S. states resisted sandboxes, notably New York, home to many old-guard financial institutions. New York regulators criticized sandboxes for allowing companies to evade consumer protection laws. A proposed New York sandbox bill failed in late 2018 due to opposition.
An Illinois regulatory sandbox bill passed the state House but was indefinitely postponed in the Senate in 2019, effectively killing it.
Speculation is that financial regulators in New York and Illinois may be protecting existing institutions and their own agencies by resisting sandboxes that could threaten their states’ financial sectors.
By 2020, even New York initiated a sandbox-like FastForward program, though distinguished from a true regulatory sandbox.
Sandboxes have potential benefits for innovators, regulators, consumers, and investors by allowing controlled testing of new financial products and services.
Sandbox success can be judged by number of participating firms, number that “graduate” to full operations, and investment attracted by participants. By these metrics, the British sandbox has been relatively successful.
However, sandboxes have drawbacks, like giving unfair advantages to participating firms, implying endorsement of products, and enabling regulatory arbitrage. The number of participants in Singapore’s sandbox has been quite low.
An alternative view is that sandboxes have value even when innovations fail by providing information to regulators and other firms without large consumer costs.
Emerging market economies (EMEs) face complex challenges managing monetary policy due to less developed markets and weaker institutions compared to advanced economies. Uncertainties are magnified for them.
New cross-border payment systems can benefit EMEs through increased remittances, investment, and growth, but also introduce risks of capital flow volatility that can constrain monetary policy independence.
Latin America illustrates the policy choices for EME central banks. Countries have heterogeneous monetary and exchange rate regimes. Some have embraced fintech and CBDCs, while others are more passive.
Cash remains dominant for payments in Latin America compared to other middle-income regions. Electronic payments are still not widely used. This contrasts with increasing digital payments elsewhere.
Financial inclusion is limited in Latin America. Most adults lack accounts at financial institutions or use of internet/mobile for transactions. There is room for progress through CBDCs, but they won’t fix underlying policy issues.
Macroeconomic and fiscal policies are key determinants of challenges like informality, dollarization, and inflation. A CBDC could help improve delivery of social programs and services, but is not a complete solution.
Emerging market economies (EMEs) face challenges in adopting central bank digital currencies (CBDCs) due to limited central bank credibility, high informality in economic activities, and dollarization. However, CBDCs could promote financial inclusion, improve payment systems, and reduce the informal economy.
EME central banks have little choice but to proactively manage financial technology innovations rather than let markets dictate the pace. CBDCs have attractive features for EMEs like improving financial inclusion and reducing the informal economy.
The benefits of CBDC depend on the central bank’s credibility and the quality of a country’s policies. A CBDC alone won’t solve underlying economic issues.
EMEs face risks from new cross-border payment systems and potential CBDCs from major economies that could amplify dollarization problems. They need to prepare for these potential challenges.
Major advanced economies have less urgency for CBDCs but they risk missing opportunities to broaden monetary policy tools. Even they are exploring potential CBDCs.
EME and smaller advanced economy central banks face risks of their currencies losing relevance if they exist only as cash. Many are moving to consider CBDCs.
Central banks face a choice between a passive approach to the digitalization of money versus proactive measures to retain central bank money relevance while benefiting from CBDCs.
The era of physical cash is coming to an end as digital payment systems become more widespread globally. This will transform money, banking, and finance.
Physical cash will become obsolete as digital currencies issued by central banks take hold. However, privately created digital payment systems will also grow, competing with central bank currencies as mediums of exchange.
Banking will change as other forms of financial intermediation become more important.
More of the world’s population will gain access to basic financial services, improving lives and economic outcomes.
The new era will look very different in some ways but remain similar in others. Central bank digital currencies will retain their role as stores of value and mediums of exchange where issued.
Private digital payment systems will bring more competition but also risks that need to be managed, like cyber risks. Effective regulation will be key.
The trajectory and effects of these changes are hard to predict precisely. But the changes will likely bring both progress and new challenges. Responding flexibly while managing risks will enable societies to capture the benefits.
New financial technologies are lowering barriers to entry and increasing competition between private currencies and fiat currencies issued by central banks. This represents a swing back towards the private currency dominance that existed before central banks were established.
Decentralized cryptocurrencies are unlikely to be viable long-term stores of value compared to fiat currencies backed by central banks.
Fintech innovations are providing more direct channels between savers and borrowers, reducing the advantages enjoyed by commercial banks in financial intermediation. This will yield better financial products meeting specific needs.
Financial decentralization can promote stability through redundancy but may also make confidence more fragile in difficult economic times.
Central banks will remain relevant and important, retaining monetary policy and regulatory functions. Central bank digital currencies are likely inevitable in the long run.
New technologies can reduce frictions in cross-border transactions, helping international trade and finance but potentially increasing volatility of capital flows.
Dominant reserve currencies like the US dollar will remain so due to strong institutional foundations of trust.
Declining use of physical cash for legitimate transactions may increase its role in illicit activities. Cryptocurrencies intended to avoid government oversight have become speculative assets instead of mediums of exchange.
Central bank abilities to supply infinite amounts of fiat currency in crises reinforce its value for transacting, unlike cryptocurrencies reliant on limited supply. Institutional frameworks remain essential for crypto markets.

Here is a summary of the key points from the chapter:

Money serves three key functions: medium of exchange, unit of account, and store of value. Different forms of money through history have served these functions to varying degrees.
Fiat money has no intrinsic value but is declared as legal tender by a government. Its value comes from the trust that it will be accepted as payment. Fiat money is the dominant form globally today.
Representative money, like gold and silver coins, has intrinsic value from the precious metal content. Its face value tends to exceed the intrinsic value.
Commodity money has value derived directly from the commodity itself, like gold or tobacco.
Inside money is created by financial institutions, like deposits or lines of credit. Outside money is created by the central bank, like cash and reserves.
Digital forms of money are becoming more prevalent, from bank deposits to cryptocurrencies. New digital forms of central bank money are also being explored.
Money facilitates transactions and serves as a measuring unit and store of value. A well-functioning financial system offers products to transfer purchasing power over time and space.
Trust in the value of money underpins the financial system. Governments and central banks play a key role in maintaining trust through regulation, oversight, and their own issuance of money.
Venture capital and private equity funds provide financing for startups and small companies, allowing them to develop innovative new products and services. However, these investments are very risky.
Venture capital funds invest in early stage companies, while private equity funds typically invest in more mature private companies.
Returns on venture capital funds are highly variable, with top performers generating returns of 20% per year over the past decade but poorly performing funds losing money. Median returns have been around 8% annually.
Private equity funds have performed better than venture capital, with median returns of 13% per year over the past decade. But there is also high variability in private equity returns.
Venture capital and private equity fill a void, providing equity financing for innovative young companies not yet able to access public stock markets. But the risks are very high for investors.
Some high profile companies like Facebook, Amazon, Google and Apple trace their origins to venture capital funding. But for every success there are many failures.
Overall, venture capital and private equity play an important role in the financial system and innovation economy, despite highly variable returns and frequent losses. Their risk-taking provides seed capital for new ideas and technologies.

Here is a summary of the key points about financial inclusion:

There are still major gaps in financial inclusion globally, with about 1.7 billion adults worldwide remaining unbanked as of 2017. Two-thirds cite lack of money as a reason for not using formal financial services.
Women make up 56% of the global unbanked. The gender gap may be partially due to cultural norms, but income level also seems to play a role. The gap is insignificant in most high-income countries.
Mobile money has helped expand financial access in developing countries, allowing people to store and transfer funds via mobile phones without needing a bank account.
Kenya’s M-PESA system has been a pioneering mobile money service since 2007. By 2019, it had over 20 million active users in a country of 50 million people.
Mobile money can facilitate commerce and remittances but has also raised concerns about illicit uses. It does not provide the full range of financial services.
Fintech firms are challenging incumbent banks in multiple areas like payments, lending, wealth management. But big banks still dominate the financial landscape.
Peer-to-peer lending marketplaces like LendingClub and FundingCircle have gained traction but also face high default rates on loans. Their underwriting models remain unproven over full credit cycles.

Here is a summary comparing Upstart’s lending model to other major fintech lending platforms:

LendingTree is a lending marketplace that connects borrowers with lenders but does not directly provide loans. Its revenue comes from match fees paid by lenders. In contrast, Upstart partners with banks to provide funding and also allows accredited investors to invest in loans on its platform.

Kickstarter and Indiegogo are crowdfunding platforms where backers contribute to creative projects, with Kickstarter using an all-or-nothing funding model while Indiegogo allows project creators to keep funds even if goals aren’t met. The average Kickstarter project receives around $25,000. These platforms facilitate small investments in contrast to Upstart which focuses on larger personal loans.

In China, Ant Financial’s Alipay pioneered a credit scoring system using online data. Its MYbank uses an automated model to provide small, uncollateralized loans to SMEs with approval in seconds. Ant Financial also offers digital credit lines to consumers through Huabei and Jiebei. However, the Chinese government has recently cracked down on Ant’s lending practices.

So in summary, Upstart functions as both a lending marketplace and a direct lender via partner banks, offers larger loan amounts compared to crowdfunding sites, and relies on more traditional credit data versus Ant Financial’s use of unconventional online data sources. Its model is more similar to a lending marketplace like LendingTree than to other crowdfunding or Chinese fintech lenders.

Here is a summary of the key points from the Wall Street Journal article “China Eyes Shrinking Jack Ma’s Business Empire”:

Chinese authorities are considering taking stakes in Jack Ma’s Ant Group and other companies as part of a crackdown on the business empire of China’s richest entrepreneur.
Regulators recently halted Ant’s blockbuster IPO and are now looking to revamp Ant’s business and regulate it more like a bank. This could curb its lending, credit and insurance services.
Authorities are also pressuring Ant affiliate Alibaba to sell some of its media assets due to concerns about the company’s influence.
The moves against Ma’s companies reflect the Chinese government’s growing unease over the power amassed by technology firms and their billionaire founders.
Regulators worry the companies have misused their market power and capital to hurt rivals and gouge consumers. The government is now looking to exert more control.
The clampdown signals that Beijing sees Ma’s empire as a threat to state-backed financial institutions. Authorities want to curb the growth of upstart companies to protect banks.
However, the crackdown risks stifling innovation that has benefited consumers and made Chinese firms world leaders in digital payments and other areas. Striking a balance will be challenging.

Here is a summary of the key points from the article:

Alipay, the leading digital payments provider in China, has unveiled a new AI-powered risk engine called AlphaRisk to better detect fraud and maintain security as digital payments grow.
Digital payments in China have exploded in popularity, with over $41 trillion in mobile payments made through Alipay and WeChat Pay in 2019.
Alipay processed over 118 trillion yuan ($17 trillion) in payments in 2019. It has over 1 billion annual active users.
AlphaRisk leverages AI and machine learning to analyze transactions and user behavior to identify high-risk transactions. It can screen 100 billion transactions per day.
AlphaRisk is part of Alipay’s efforts to balance convenience and security as digital payments expand. Other security features include facial recognition and virtual passwords.
Alipay and WeChat Pay have also recently opened their platforms to international credit cards, expanding accessibility.
China’s mobile payment ecosystem provides lessons for other countries pursuing financial inclusion through digital payments, like India’s Unified Payments Interface.
Companies like Ripple, Wise (formerly TransferWise), and WorldRemit are using new technologies to improve international remittances and cross-border payments.

In summary, Alipay’s new AI risk engine aims to safeguard its growing digital payments business amid China’s fintech boom, while global payment systems continue innovating to enhance speed, accessibility, and affordability.

Here is a summary of the key points about Bitcoin’s origins and underlying technology:

Bitcoin was created in 2008 by the pseudonymous Satoshi Nakamoto, who published a white paper outlining a peer-to-peer electronic cash system. The goal was to enable online payments without going through financial institutions.
The timing of Bitcoin’s launch coincided with the 2008 financial crisis and growing distrust of banks and government institutions. This environment made people more open to a decentralized digital currency.
Bitcoin relies on several key innovations:
- Cryptography (public/private keys) enables secure transactions
- A distributed ledger (blockchain) records transactions transparently and prevents double spending
- A decentralized network of miners validates transactions through proof-of-work
- Digital scarcity is created through bitcoin mining with a limited supply
The blockchain is a distributed, immutable ledger that transparently records all transactions. It is decentralized so no single entity controls it.
Mining incentivizes participants to validate transactions and mint new bitcoins. It involves solving computational puzzles using significant computing power.
Overall, Bitcoin’s technological innovations allow it to function as scarce digital money without centralized control. However, its ideals have proved difficult to live up to in practice.

Here is a summary of the key points about the Bitcoin blockchain:

Ralph Merkle patented the concept of cryptographic hashing and Merkle trees in 1982. This allows efficient verification that a transaction is included in a block.
Satoshi Nakamoto’s Bitcoin whitepaper in 2008 described using blockchain as a decentralized mechanism for trust. Transactions are grouped into blocks, with each block cryptographically linked to the previous one.
Consensus is achieved through proof-of-work mining. Miners compete to solve a computational puzzle to create new blocks. This makes the blockchain immutable and secure against attack.
The blockchain acts as a public ledger that permanently records all transactions. Anyone can download a copy of the blockchain to verify transactions.
Miners are rewarded with newly created bitcoins for validating transactions. The reward is halved every 210,000 blocks.
Bitcoin has advantages like decentralization, transparency, and immutability. But it also has drawbacks:
Bitcoin’s value is highly volatile, making it a poor store of value and medium of exchange.
Slow transaction speeds and high fees due to small block size limits scaling.
Vulnerabilities to hacking and fraud, like the Mt. Gox exchange hack.

In summary, blockchain provides groundbreaking technology but Bitcoin has limitations as a cryptocurrency. This spurred innovations in blockchain technology and the creation of alternative cryptocurrencies.

Here is a summary of the key points from the article:

In the bankruptcy proceedings of a cryptocurrency exchange, there were claims totaling about $27 billion against the exchange. However, one claim for an additional $2.4 trillion was considered implausible and extravagant.
The bankruptcy administrator determined that only $414 million in claims were legitimate, but there were only $91 million in assets available to distribute to claimants.
Cryptocurrency exchanges have been frequently hacked, with a comprehensive list documenting many incidents. Two exchanges hacked in June 2019 were Bitrue and GateHub.
Cryptocurrencies like Bitcoin aim to provide anonymity, but analysis of transaction records can reveal identities. For example, hackers who compromised Twitter accounts were quickly identified.
Bitcoin mining consumes enormous amounts of electricity, estimated to be more than many small countries. This is largely due to the computational “proof of work” required.
China had been a center of Bitcoin mining due to low electricity prices, but the government has discouraged it due to energy and environmental concerns. Mining has spread to other areas like Siberia and the Middle East that have cheap electricity.
The high energy usage and associated carbon emissions from Bitcoin mining have raised questions about its environmental sustainability. However, some argue the system is worth the energy costs.
There has been a proliferation of cryptocurrencies beyond Bitcoin, with over 3,000 listed and around 1,500 with positive market capitalizations. However, Bitcoin still dominates, accounting for about 63% of total cryptocurrency market capitalization.
Alternatives to Bitcoin’s energy-intensive proof-of-work consensus mechanism have emerged, including proof-of-stake, delegated proof-of-stake, and proof-of-authority. These claim to be more efficient while still ensuring decentralization and security.
Ethereum, the second largest cryptocurrency, is transitioning from proof-of-work to proof-of-stake which could reduce its energy usage by 99%. However, proof-of-stake has its own potential drawbacks around centralization of power.
Stablecoins aim to tackle the volatility of cryptocurrencies by pegging their value to fiat currencies or other assets. Tether is the most widely used but has faced questions over its reserves and whether it is truly backed one-to-one by dollars.
Regulators have expressed concerns about Tether’s opacity and the potential implications if its dollar peg were to fail. An audit provided some reassurance but did not eliminate all doubts.
Despite Bitcoin’s continued dominance, there is ongoing innovation in the cryptocurrency space with new consensus models and stablecoin designs aiming to improve on Bitcoin’s limitations. However, risks and regulatory uncertainty remain.

Here is a summary of the key points from the given texts:

Former FBI Director Louis Freeh joined a cryptocurrency company, showing increasing mainstream interest and acceptance of cryptocurrencies. However, research by Griffin and Shams indicates substantial manipulation in the bitcoin market.
The stablecoin issuer Tether tried to avoid regulatory scrutiny by prohibiting users from certain sanctioned countries. The New York Attorney General accused Tether of fraud, eventually reaching a settlement.
Privacy-focused cryptocurrencies like Monero and Zcash aim to restore anonymity lost in transparent blockchains like Bitcoin. However, analyses show most Zcash transactions do not utilize its privacy features.
Smart contracts are programs that automatically execute transactions if conditions are met. Some countries have passed laws recognizing their legal validity, but ambiguities remain.
Initial coin offerings (ICOs) emerged as an alternative funding method, raising billions. High-profile ICOs attracted regulatory scrutiny. Later ICOs focused on private sales to accredited investors to avoid regulations.
ICO funding exceeded venture capital for blockchain startups in 2018. But many ICO projects failed to deliver. Regulators stepped up oversight and enforcement. The ICO boom faded but smaller offerings continue.

Here is a summary of the key points from the TechCrunch article:

Initial coin offerings (ICOs) have delivered at least 3.5 times more capital to blockchain startups than venture capital (VC) since 2017. ICOs raised nearly $6.3 billion in 2017 and over $21 billion in 2018.
In contrast, VC investment in blockchain startups was about $1.5 billion in 2017 and $2.4 billion in 2018 based on data from Pitchbook.
The price performance of many ICO tokens has been very volatile. For example, the price of an EOS token fell from $13.68 in early June 2018 to $6.54 by early September 2018.
Some ICOs have been accused of fraud by regulators. In November 2018, the first guilty plea in an ICO fraud case was made. The SEC has also taken action against certain ICOs, including Telegram in 2019.
Despite regulatory concerns, ICOs exploded in popularity in 2017-2018 as a way for blockchain startups to raise funds quickly without the need for traditional VC. However, the long-term value proposition of many ICO tokens remains uncertain.

In summary, the article highlights how ICOs outpaced VC as a funding source for blockchain startups, while also noting the risks and volatility associated with many ICO tokens. Regulatory scrutiny of ICOs has increased, but they became a popular tool for startups to raise funds during the 2017-2018 blockchain boom.

Here is a summary of the key points from the article “Why We Can’t Trust Facebook” by Brookings Institution:

Facebook proposed a digital currency called Libra, but it faced intense backlash over concerns about privacy, money laundering, and monetary policy. This led Facebook to rebrand Libra as Diem.
Facebook has a history of compromising users’ privacy for its own benefit, so there are valid concerns about trusting it with sensitive financial data.
Facebook could use Diem’s payments data for targeted advertising or deny services to certain groups, raising discrimination issues. Regulators worry about money laundering risks.
Facebook could wield immense monetary power with 2.4 billion users adopting Diem, undermining national sovereignty over currency. But Diem’s governance structure is opaque.
Facebook says Diem will help the unbanked, but its past initiative Internet.org, renamed Free Basics, was accused of “digital colonialism” in developing countries.
Overall, Facebook’s poor track record on privacy and transparency raises red flags about trusting it with a global digital currency like Diem without strict oversight. Regulators need to ensure Diem does not exacerbate Facebook’s existing problems.

Here is a summary of the key points from the referenced material on central bank digital currencies (CBDCs):

There are two main forms of CBDC being considered - wholesale and retail. Wholesale CBDCs would be used for interbank payments while retail CBDCs would be available to the general public.
Motivations for issuing a retail CBDC include having a backup payment system, promoting financial inclusion for the unbanked, and asserting monetary sovereignty in the face of private digital currencies.
A CBDC could give central banks an additional monetary policy tool. It could allow central banks to push interest rates below zero, implement helicopter money stimulus programs directly, and improve the transmission of monetary policy.
Other potential advantages of a CBDC include reducing the use of physical cash for illicit activities, levying negative interest rates, and enabling direct government transfers or “helicopter money” stimulus programs.
However, there are also risks and drawbacks such as disintermediating banks, enabling bank runs, facilitating surveillance of citizens, and disrupting existing monetary policy operations. Overall the benefits versus costs are still being debated.

Here is a summary of the key points from the article:

Björn Ulvaeus, a member of the pop group ABBA, is leading a movement in Sweden to eliminate cash. He argues that cash enables tax evasion, illegal activity, and inefficiency.
Björn Eriksson, the former head of a Swedish police unit investigating organized crime, counters that eliminating cash could infringe on personal liberties and privacy. He believes cash provides a backup payment system.
Sweden has become one of the most cashless societies in the world. Many Swedish businesses don’t accept cash. Bank robberies and some other cash-related crimes have declined.
However, electronic payment fraud has risen sharply in Sweden as cash use has dropped. Critics argue eliminating cash entirely could be problematic for the elderly, immigrants, and others who rely on it.
India, Kenya, and other countries have undertaken large-scale “demonetizations” in recent years to fight corruption and tax evasion by eliminating certain currency notes. These moves have had mixed results.
Researchers estimate that shadow economies account for 8-30% of economic activity in developed economies. Shadow activity reduces tax revenues.
Shifting transactions to electronic payments could reduce shadow economies. But some argue eliminating high-denomination notes rather than all cash may be a better approach.

Here are the key points on the importance of cash, especially for lower-income and unbanked populations:

Approximately 6.5% of US households (8.4 million) are unbanked and rely heavily on cash. An additional 18.7% (24.2 million) are underbanked. These proportions are higher among lower-income, less educated, younger, and minority households.
Banning cash could hurt these vulnerable populations by limiting their purchasing options and access to financial services. They may lack the ID or credit history required to open bank accounts.
Some US cities and states have passed laws requiring businesses to accept cash to protect unbanked consumers. These include New York City, Philadelphia, San Francisco, New Jersey, and Massachusetts.
There have been some attempts at federal legislation to ban cashless stores, such as the CASH Act and Payment Choice Act, to preserve cash access nationwide. But these have not yet passed into law.
Advocates argue cash provides freedom, anonymity, and control for consumers. It doesn’t rely on bank accounts, stable internet access, or digital literacy.
Losing cash could reduce financial inclusion, make it harder for the poor to budget, and deprive them of privacy in their transactions. It’s important to consider these impacts in any transition away from cash.

Here are the key points on the status of CBDCs:

Finland launched an e-money system called Avant in the 1990s that functioned similarly to a CBDC but did not have legal tender status.
Tunisia’s e-Dinar, launched in the 2010s, was one of the first CBDCs. It was used by around 6% of the population via cards issued by the postal service. However, recent central bank reports make no mention of it.
Ukraine piloted an e-hryvnia CBDC in 2018-19, issuing the equivalent of around $200.
The Eastern Caribbean Currency Union launched a pilot of DCash in 4 member countries in early 2021. This is one of the most advanced CBDC projects currently.
Overall, CBDC projects remain largely in research and pilot stages. No major economy has fully launched a general purpose CBDC yet. However, development activity has increased significantly in recent years.

Here is a summary of the key points about China’s central bank digital currency (CBDC) e-CNY:

The People’s Bank of China (PBC) has been developing a CBDC since 2014, establishing the Digital Currency Research Institute in 2017.
The e-CNY uses a two-tier operating system, with the PBC issuing the digital currency to authorized commercial banks, who then distribute it to the public. This allows the PBC to maintain control over the currency.
The e-CNY is intended to complement existing electronic payment systems like Alipay and WeChat Pay, not compete with them. It aims to eventually reach retail transaction volumes comparable to those systems.
The e-CNY will likely have some level of controllable anonymity, allowing the PBC to track transactions to prevent criminal activities, while still protecting user privacy.
The e-CNY aims to replace a portion of physical cash in circulation, providing a digital payment instrument with the liquidity and safety of central bank money.
Pilot testing of the e-CNY is underway in several cities across China, with plans to eventually roll it out nationwide after testing is complete.

In summary, the e-CNY is a retail CBDC under development by the PBC designed to replace some cash usage while complementing existing digital payment systems. It will give the central bank more control over the currency while still protecting user privacy.

Here is a summary of the key points about official cryptocurrencies:

Russia explored the idea of a state-issued “CryptoRuble” after President Putin met with Ethereum co-founder Vitalik Buterin in 2017. However, the central bank has been skeptical due to concerns about undermining state sovereignty and financial stability.
Iran’s President Rouhani proposed an Islamic cryptocurrency to facilitate transactions among Muslim countries and circumvent U.S. sanctions. However, there has been little development.
Russia’s central bank governor Elvira Nabiullina said they may consider a gold-backed digital currency. This demonstrates interest but caution about issuing a direct cryptocurrency.
Venezuela launched the state-backed Petro cryptocurrency in 2018 as a way to raise hard currency, but it has been plagued by controversy, technical glitches, and limited adoption. Most analysis suggests it has failed to gain significant traction.
In general, government-issued cryptocurrencies face hurdles like technical challenges, uncertain legal status, and wariness from citizens and businesses. Countries appear interested in exploring state digital currencies but are proceeding cautiously.

Here is a summary of the key points about CBDCs and the initial wave of projects:

Central bank digital currencies (CBDCs) are digital forms of fiat money issued by central banks. They can exist in both retail and wholesale forms.
Wholesale CBDCs are designed for restricted-access payments between financial institutions. Retail CBDCs would be widely accessible to the general public.
Early CBDC projects have mostly focused on the wholesale variety, including projects by the Bank of Canada (Project Jasper), the Monetary Authority of Singapore (Project Ubin), and the European Central Bank (Project Stella).
These wholesale CBDC projects have demonstrated the feasibility of distributed ledger technology for interbank payments and settlement. They highlight the potential improvements in areas like speed, costs, transparency, and resilience.
However, many design choices remain regarding CBDCs, including distribution, privacy protections, programmability, interests/rewards, and integration with existing systems.
The jury is still out on whether retail CBDCs would provide a useful upgrade to current retail payment systems in advanced economies. Potential benefits include financial inclusion and stimulus spending.
Small nations like the Marshall Islands and Venezuela have been more eager to adopt retail CBDCs, with mixed results so far. The utility and adoption of these schemes remains uncertain.

Here is a summary of the key points about international payments and central bank digital currencies:

The US dollar is the dominant global currency, used extensively in trade invoicing, payments, and foreign exchange reserves. This gives the US power over the global financial system.
Cross-border payments currently rely on correspondent banking and messaging systems like SWIFT, which can be slow and costly.
SWIFT exposes the global financial system to risks, as it can be subject to cyber attacks or used as a tool for financial sanctions against certain countries.
New financial infrastructures like CBDCs and global stablecoins could make cross-border payments faster, cheaper, more transparent, and more resilient. They could challenge the dominance of the US dollar and SWIFT.
Projects like Canada’s Jasper-Ubin, Aber, and Inthanon-LionRock are experimenting with using CBDCs for international settlements between central banks. This could significantly improve efficiency.
The rise of CBDCs could lead to reduced demand for traditional reserve currencies like the US dollar, reshaping the global monetary system. But the dollar’s status depends on many factors, not just technological innovation.

Here is a summary of the key points from the Deutsche Bank white paper on SWIFT’s global payments innovation (gpi):

SWIFT launched gpi in 2017 to improve cross-border payments by increasing speed, transparency, and end-to-end tracking. gpi payments must be credited to the recipient account within 24 hours.
Key features of gpi include same-day use of funds, transparency of fees, transfer of rich payment information, end-to-end payments tracking, and gpi Observer analytics.
As of early 2018, 165 banks had signed up for gpi representing over 75% of SWIFT cross-border payments. Over $100 billion in gpi payments were being made daily.
gpi enables banks to provide their customers real-time information on payment status, predict exact time of funds delivery, and have transfer fees transparent upfront. This greatly improves customer service.
Adoption of gpi by major transaction banks is placing pressure on other banks in the correspondent banking network to join. Network effects and pressure from multinational corporates is driving rapid adoption.
gpi strengthens SWIFT’s competitive position against new technologies like blockchain. Adoption of ISO 20022 will also support future innovations by SWIFT.

In summary, SWIFT gpi aims to significantly improve the speed, transparency, and tracking of cross-border payments. Its rapid adoption by major banks is transforming correspondent banking.

Here is a summary of the key points from the article “China Buying Sparks Bitcoin Surge” by Muert Hunter and Chao Deng in the Wall Street Journal:

The price of bitcoin surged 20% in May 2016 amid greater demand from Chinese investors looking to move money out of China.
China has strict capital controls that limit how much money citizens can move out of the country. Bitcoin provides a way to circumvent these controls.
Trading data suggests much of the bitcoin buying was coming from China. The price premium for bitcoin on the Chinese exchange BTCC was $40-$50 higher than the US exchange Bitstamp.
Chinese investors have turned to bitcoin as the yuan has weakened and the government has tightened controls. There have been reports of money fleeing China through casinos in Macau, foreign property purchases, and other channels.
The surge in bitcoin buying comes just before an important shareholder meeting of BTCC’s parent company. There is speculation the parent may try to sell its stake in the exchange.
Overall, the increased Chinese buying highlights bitcoin’s role as a mechanism for getting around capital controls and moving money out of China. But it also shows China’s continuing ability to influence bitcoin prices by loosening or tightening regulation.

Here is a summary of the key points from the quoted text:

The IMF provided emerging markets liquidity support during the 2020 crisis through a new short-term liquidity line. There was also eventual US support for a fresh IMF special drawing rights (SDR) allocation of $650 billion in 2021.
There have been proposals to make the SDR an international unit of account, which would further strengthen its role.
The renminbi rose in prominence over the 2010s as a global payments currency, but its share has stalled since 2016 at around 2% of global payments. Its share of foreign exchange reserves is also around 2%.
China has moved toward a more flexible exchange rate since 2019, though the PBOC still influences the renminbi’s value.
China’s central bank digital currency (e-CNY) is unlikely to pose a serious threat to the US dollar’s dominance, at least in the near future. The dollar’s role rests on foundations like deep financial markets that China lacks.
Overall, while the renminbi has gained ground, progress has stalled. China still lacks key attributes to make the renminbi a dominant global currency and meaningfully challenge the dollar’s status.

Here is a summary of the key points from the provided sources on the Wirecard scandal and Fed crisis response:

Wirecard Scandal

German fintech company Wirecard AG grew rapidly and was seen as a European tech success story, entering the DAX stock index in 2018.
However, questions emerged about Wirecard’s accounting and operations. Financial Times journalist Dan McCrum published a series of critical investigative articles starting in 2015.
In early 2019, Wirecard hired accounting firm KPMG to conduct an outside audit. The April 2020 KPMG report was unable to verify over €1 billion claimed by Wirecard in accounts related to third parties.
Wirecard’s CEO Markus Braun resigned after the report’s release. Days later, the company revealed €1.9 billion in cash was missing and likely never existed. Wirecard filed for insolvency soon after.
Braun was arrested and accused of inflating Wirecard’s balance sheet through fake income and sham companies. Other executives were also arrested. Authorities are investigating massive fraud at the company.

Fed Crisis Response

As COVID-19 spread in early 2020, the Fed took extreme monetary policy actions to support financial markets and lending.
Steps included cutting interest rates to near zero, committing to unlimited asset purchases (QE), supporting critical lending markets, easing bank capital requirements, and creating emergency lending facilities.
These facilities provided loans to banks, money market funds, corporations, municipalities, and asset-backed securities markets. Facilities aimed to improve liquidity and keep credit flowing.
The Fed also modified and created new swap lines with foreign central banks to provide dollar liquidity abroad. This aimed to prevent funding stresses globally.
In total, the Fed’s actions were unprecedented in speed, scope, and scale. They helped stabilize highly volatile financial markets in the initial months of the crisis.

Here is a summary of the key points regarding the South Korean regulatory sandbox and investment amounts:

South Korea launched a financial regulatory sandbox in 2019 to facilitate innovation in financial services. Over 50 companies have tested new products and services in the sandbox.
As of May 2020, companies participating in the sandbox had secured 111 million USD in investments and were expected to create 380 new jobs.
The sandbox allows companies to test innovative financial products without needing to comply with all regulatory requirements upfront. Even failed innovations provide valuable lessons.
Other countries like Singapore and Malaysia have also implemented regulatory sandboxes to spur financial innovation. Singapore’s sandbox has seen over 40 experiments by financial institutions and fintech firms.
Sandboxes allow controlled experimentation with new technologies like blockchain, AI and biometrics. They balance innovation with appropriate safeguards against risks.

The main sources are reports from the South Korean Financial Services Commission, the Inter-American Development Bank, and articles from Crowdfund Insider and Forbes. Key details and quotes also come from reports by the Monetary Authority of Singapore and others.

Here is a summary of the key points from the 1st ACM Conference on Advances in Financial Technologies (AFT ’19) held in Zurich in October 2019:

The conference brought together researchers and practitioners to discuss emerging technologies like blockchain, cryptocurrencies, and digital payments. Several themes emerged:
Digital currencies and central bank digital currencies (CBDCs) were a major topic. Speakers discussed the potential benefits of CBDCs like financial inclusion and programmability, as well as risks around privacy and financial stability. There was debate around whether CBDCs should complement or replace bank deposits.
Cryptocurrencies and blockchain were also discussed extensively. Presentations covered topics like blockchain scalability, smart contracts, cryptoasset valuation, and the evolution of crypto from mining to financial markets. Both risks like volatility and manipulation as well as potential benefits were examined.
New digital payment systems were another focus. Presentations looked at innovations in areas like mobile money, real-time payments, and cross-border transactions. Key questions included how to balance safety, efficiency, and accessibility in new platforms.
Broader policy issues were considered as well. Several papers discussed how regulations could be adapted to enable financial innovation while still protecting consumers. There were also examinations of how technology may affect central bank operations and monetary policy.
Overall, the conference provided a multi-disciplinary perspective on how emerging technologies are transforming finance and creating opportunities as well as new risks. It highlighted many open questions and challenges still facing researchers and policymakers in this rapidly evolving landscape.

Here is a summary of the key points from the passages:

Digital currencies like Bitcoin and central bank digital currencies (CBDCs) are gaining popularity and raise important questions about the future of money and finance.
Private digital currencies like Bitcoin allow fast, low-cost transactions and operate outside the traditional financial system, but are volatile and raise regulatory concerns.
CBDCs would be digital forms of fiat money issued by central banks, combining the convenience of digital payments with the stability and trust of government-backed currency.
CBDCs could expand access to the financial system, improve monetary policy transmission, and reduce costs, but also raise privacy concerns and challenges for commercial banks.
The rise of fintech lenders and big data is transforming credit markets, expanding access but also posing risks that need to be managed.
New payment systems like China’s Alipay and digital currencies can enhance financial inclusion and efficiency, but the dollar’s status as the dominant global currency provides the U.S. major economic advantages.
Overall, new financial technologies hold major promise but also risks, so policymakers face challenges in promoting innovation while safeguarding stability and privacy.

Here is a summary of the key points from the references:

Digital currencies like Bitcoin and blockchain technology are transforming finance and have implications for central banking. There are debates around their benefits and risks.
China is reforming and internationalizing its financial system, including currency. This has impacts on the global monetary system.
New financial technologies like digital lending platforms are disrupting banking and expanding access to finance. But they also pose risks.
Cash is declining in some countries but remains important for privacy, inclusion, and as a backup. The future of cash provokes debates.
Central banks are considering issuing digital currencies to modernize payments and maintain monetary sovereignty. But design choices carry risks and tradeoffs.
The global financial crisis revealed problems with regulation, shadow banking, and too-big-to-fail institutions. Reforms are ongoing.
International monetary cooperation is needed for exchange rate policies, capital flow management, and the global financial safety net.

The references cover monetary theory, monetary history, central banking, financial innovation, financial regulation, China’s financial reforms, and debates around topics like digital currencies and the future of cash.

5, 398n

cross-border payments, 325–331

current approaches to improving, 7–17; digitization, 13–16, 329–330; distributed ledgers, 16–17

main conclusions on improving, 17–20, 331–332

decentralized finance (DeFi), 255–258; blockchain trilemma and, 258; limited uptake of, 255–256; ongoing challenges with, 257–258; potential benefits of, 256

role for CBDCs in improving, 349–354; accessibility, 351–352; cross-border payments, 349–351; financial stability and development, 352–353; monetary policy effectiveness, 352–353

backdoors in digital currencies, 241–242, 266

banks and banking: banknotes issued by, 36f, 38, 41; CBDCs’ impact on, 251–254; concentration in, 293; credit creation by, 16, 90–91, 101–102, 170; credit risks taken by, 38; cross-border links of, 126; decentralized finance’s challenge to, 255–258; demand deposits at, 41, 90–91, 100–101, 190; digital currencies’ impact on, 329–330; economic stimulus from, 309; financial intermediation by, 7; fintechs vs., 243, 245; fractional reserve banking by, 90–93, 190; money creation by, 7, 16, 90–93, 151, 170, 190–191; narrow banking proposal for, 312; payments processed by, 7, 313, 329–330; relation to money, 41, 95; runs on, 39; shadow, 303–304; technology’s disruption of, 15–16

Basel III framework, 293

Bermuda, 209, 225, 242, 364n

bills of exchange, 39–40, 41, 43, 46

BIS. See Bank for International Settlements

Bitcoin: anonymity of, 111, 137–138, 157, 397n; appreciating, 129–131; blockchain system in, 5–6, 15, 83, 102, 107, 109–114, 137–138, 255; CBDC vs., 83, 209–210, 236; clearing and settlement with, 15, 250; code governing, 111, 117, 156; coins in, 149; computational resources needed for, 139–140, 215; creation of, 107–108; decentralization ideal in, 107–108, 114, 116; deflationary nature of, 129–130, 146–147, 155, 209–210, 212; design flaws of, 210; developer community for, 113; digital signatures in, 109–110; energy usage by, 115, 142–145; exchange rate volatility of, 129, 168; fintech vs., 243; fungibility of, 158–159; governance lacking in, 156–158; hardware for, 139–140; incentives in, 111, 131; as investment, 121–122, 125, 128–131; ledger entries in, 110–111; market capitalization of, 121–122, 125, 269, 396f; payments with, 4–5, 15, 82, 102, 123, 250, 326, 331; permissionless system of, 114–115, 157; price of, 102, 122, 125, 130f, 131, 146–147, 210; privacy vs. anonymity and, 157–158; proof of work for, 110–111, 115, 139–140, 145; regulation of, 209–212; scalability lacking in, 114–115, 142, 212, 250; smart contracts based on, 256; speculation in, 129–131; technical community as driver of, 113; transaction costs of, 4–5, 15; as transformative innovation, 102; true believers in, 107–108, 113, 131; volatility of, 4–5, 129, 168; “whales” holding, 113

bitcoin (unit of account), 108–109

blockchain: anonymity and, 138; banks using, 16; in Bitcoin, 5–6, 102, 107, 109–114, 137–138, 255; business applications of, 105; CBDCs based on, 14, 217–218; cross-border payments via, 319, 322–325; cryptographic seals enabling, 137; decentralization of, 114, 116; distributed consensus via, 16–17, 110–112, 155–156, 323–324; energy usage of, 142–145; evolution in finance of, 104–105; lessons from, 17; for payments, 15–16; privacy vs. anonymity and, 157–158; private vs. public, 138; proof of work validating, 110–111, 116, 139–140, 155–156; scalability challenges for, 114–115, 142

Borges, Jorge Luis, 155

Bretton Woods system, 8, 45, 278–282

BRICS economies, 290. See also Brazil; China; India; Russia; South Africa

Brunei, 100

bubbles. See speculation

Buddhism, 66, 212

Calasso, Roberto, 66, 155

Cambodia, 76, 100

Canada, 30f, 100, 209

capital: free movement of, 278, 291–293; human and physical, 281

capital controls, 86, 291–293

cash: anonymity of, 63, 210, 240–241, 357; biochemical risks of, 234; CBDCs converting users from, 226; coins and banknotes as, 36f, 38, 41; costs of handling, 63–65, 234; crime abetted by, 210; demand for, 32–34, 218; digital fiat currencies replacing, 209–215; as drain on seigniorage, 33; financial inclusion and access to, 54; hoarding, 211; hygiene issues with, 234; for inequality mitigation, 238; money evolution and, 3–4, 38–39, 60–62; payments with, 4, 15, 82, 210, 240; privacy and, 240–241; security enabled by, 63–65; stigma declining for, 60–62; storing and transporting, 64; transactions not recorded with, 15

CBDCs. See central bank digital currencies

Cayman Islands, 209, 226

central bank digital currencies (CBDCs): anonymity of, 22, 217, 229, 238, 252–253, 266; on blockchain platforms, 14, 217–218; business use of, 215–216; case for, 207–219; cash displaced by, 209–215; convertibility designed into, 223; cross-border payments enabled by, 225–229, 331, 349–351; decentralization avoided in, 17; demurrage on, 212–213; design choices for, 221–225; exchange rate fixity ensured by, 168; experiments with, 12–13; Extensible Payment Protocol as platform for, 320–321; financial inclusion enabled by, 219, 236, 316, 351–352, 353f; foreign, 362n; impact on banks of, 251–254; inequality addressed by, 213, 215, 236–240, 316; interest-bearing, 207, 213–215, 222, 227, 237–238; as legal tender, 223; monetary policy implementing, 218; money neutrality from direct issuance of, 174; offline capabilities for, 233–234; payments with, 6, 14, 82, 220–221, 225–226, 240–244, 250–251, 331, 349, 353f; platforms for, 217–218; privacy and, 238, 252–253; programmability built into, 13, 252; as public good, 353; risks of, 261–262; seigniorage from, 31, 166, 206, 208, 213–214, 218, 225, 237; technical challenges with, 232–235; token-based, 6, 221–222; transaction costs eliminated by, 84; two forms of, 6, 220–221; use cases of, 215–216, 232, 238–244, 260; user interface for, 221, 232

China: balancing policies needed in, 306; bank-centric financial system of, 374n; capital controls in, 86, 292; cash usage declining in, 32–34; commodity futures trading in, 189; cross-border investment channels restricted in, 292; cross-border payments tested by, 226; currency diplomacy of, 8, 287, 290; currency swap lines lacked by, 294; economic role of, 55; entrepôt trade by, 76–77; exchange rates fixed in, 168; exports from, 279, 306; external constraints on, 281; fintech development in, 13, 73–77; foreign exchange reserves of, 7, 167, 283–284, 285f, 290; imports to, 305; inequality in, 284; as largest creditor nation, 283–284; mistrust of banks in, 374n; monetary stimulus in, 300; multipolar currency order and, 284–285; pandemic policy responses of, 301; renminbi internationalized by, 7–8, 284–285, 287, 290, 325; shadow banking in, 302–304; trade surpluses of, 7, 91, 279, 283–284, 305–306; as triangulating platform, 76–77; U.S. dollar accumulated by, 167, 283–284, 290

Chile, 54, 100, 209, 226

China Construction Bank, 73–74

civil service, 63

climate change: global governance and, 247–249, 265; technology responding to, 104–105

coins: advantages of, 61–62; denominations of, 223; elections depicted on, 50; metal, 36f, 38–41, 234; physical security from, 64; royal portraits on, 49f; shells used as, 35f, 41

cold wallets, 140

collateral: fungible assets as, 256; instability from cross-border, 296; quality of, 170; rehypothecated, 304; from staking validators, 169; underlying credit, 304

commodities: collateralized, 219; exchange rates influenced by, 167; futures contracts on, 204; money replaced by, 44; prices, 176, 204; storage costs for, 64; traded for money, 41

competition: currency, 167; economic, 76; technology enabling, 104

confidence: in currency, 48–49, 167; economic, 300–302; inspirational, 314; social cohesion and, 49

Congo, 54

consensus mechanisms, 110–112, 155–156, 169, 258, 323–324

convertibility: into CBDCs, 223; into gold, 40, 43–46, 279; into silver, 41

coronavirus pandemic, 28, 31, 301–302, 317

credit, cross-border, 295–298

credit cards, 15, 54

CreditEase, 74

credit money, 7, 16, 90–93

credit risk, 38, 170

crime, 210–211, 240

cross-border investment channels, 292–293

cross-border payments, 89, 316–332; approaches to improving, 7, 325–331; asynchronous, 324; blockchain-based, 319, 322–325; CBDCs enabling, 225–229, 331, 349–351; correspondent banking hindering, 293, 317; credit creation separated from, 91; data standards needed for, 327; debiting vs. crediting in, 318–319; digitization advancing, 13, 329–330; finality lacking in, 325; friction costs of, 324; pace slowed for, 318; platforms proposed for, 320–322; real-time, 15, 318–319, 320, 326; settlement separated from, 91; transparency needed in, 326–327

cryptoassets: borderless nature of, 208; bubble in, 121–122; CBDCs vs., 83, 208–210; decentralized, 255; exchange traded products on, 125; failed experiments with, 366n; fractional reserve banking in, 170; hedging with, 204; highly volatile, 123–124; money vs., 83; safeguarding keys for, 147–148; traded via fintech platforms, 74; utility vs. store of value for, 129; valuation models lacking for, 124–125. See also cryptocurrencies

cryptocurrencies: anonymity of, 137–138, 157–159, 197, 258, 397n; appreciation sought in, 129–131; backdoors built into, 241–242; banning, 212; borderless nature of, 206–208; bubbles in, 121–126; characteristics of, 102–103; concentrated ownership of, 158, 210; as counterculture technology, 107; criminal abuse of, 210–211; cross-border transfer of, 319; decentralization ideal of, 107–108, 116; deflationary nature of, 129–130, 146–147, 209–210; exchange rate volatility of, 129, 168; failed, 113; financial stability risks from, 123, 148–149; fungibility of, 158–159; hacks stealing, 147; hardware for, 139–142; hoarding, 211; incentives structure of, 111; as investment, 121–131; law of one price lacking with, 168; mainstream embrace of, 126; money compared with, 82–83; money evolution and, 3, 19, 102–108, 383n; money neutrality and, 170; money surrogates as, 81–82; origins of, 106–108; payments with, 4–5, 15, 82, 102, 123, 250, 326, 331; privacy vs. anonymity and, 157–158; private sector issuance of, 104, 220; proof of work validating, 110–111, 115, 139–140, 145; public policy toward, 208–212; scalability lacking in, 114–115, 142, 212, 250; security compromises of, 146–149; security of, 104; smart contracts based on, 256; speculation in, 121–131; taxes on, 213; technical governance of, 156–158; trading vs. transactional use of, 123; transaction costs eliminated by, 84; valuation models lacking for, 124–125

cryptoexchanges, 125, 220

cryptography, 106, 109–110, 137–138, 157–158

Cuba, 212, 235, 292

currencies: anxiety over, 12; appreciation vs. depreciation of, 128, 167–168; barter preceding, 34–37; brands vs., 48–50; brittleness of unilateral power over, 287–289; broad accessibility needed for, 52–54; CBDCs, 6, 220–221; competition among, 167; compromised faith in, 50; confidence in, 48–49; convertibility designed into, 45, 223; counterfeiting, 47, 49; creditworthiness reflected in, 167; cross rates among, 7–8, 168; cryptoassets vs., 82–83; denomination, 41; depreciation of, 128, 167–168, 283; devaluation, 168, 175; digital, 82; disasters undermining, 12; domestic stability enabled by, 52; dominant, 45; fixed exchange rates for, 168, 280–281, 285; foreign, 32; four roles of, 44; functions valued in, 236; gold convertibility of, 40, 43–46, 279; gold standard link to, 43–46; hoarding, 211; ideal qualities of, 44; inequality and divides in access to, 54–56; inflation’s impact on, 43, 168, 174–176; as instrument of empire, 46–47; interest rates influenced by, 176; international monetary system based on, 278–285; legal tender status of, 41; local alternative, 209; manipulation accusations, 290; mental account units vs., 59–60; monopoly, 167; multilateral framework for, 280–281; multiple, 44, 47, 209; neutrality of, 170; offshore digital, 226; parlous state of, 12; political imagery on, 49–50; portable, durable, divisible, 41; price stability and, 167–176; reserve, 282–284; security enabled by, 63–65; shells used as, 35f, 41; silver and gold as, 38–41; smart, 177; social cohesion from, 48–50; soft power of, 289; speculation destabilizing, 176; storable value and, 51; symbolic weight of, 48–49; technology disrupting, 20, 103; tokens vs. money as, 59; trade imbalances and, 7; transactions tracked with, 15; unity conveyed by, 46–47, 49–50

cyber risk, 146–149

darknets, 211

debit cards, 15, 54

debasement, of currency, 40, 43, 129, 175

decentralization: aspirations for, 78–80, 107–108, 116; blockchains enabling, 114, 116; CBDCs avoiding, 17; of cryptoassets, 255; through distributed ledgers, 16–17; financial stability and, 257; limits to, 155–158; of money creation, 190–192; peer-to-peer exchange and, 79; of power, 116

decentralized autonomous organizations (DAOs), 256–257

decentralized finance. See DeFi

deflation, 7, 129–130, 146–147, 175, 209–210

Del Mar, Alexander, 35

DeFi. See decentralized finance

demand deposits, 41, 90–91, 100–101, 190

denominations, of currency, 41, 223

depression, economic, 176

devaluation, 168, 175

developing economies: barter in, 35; broad accessibility needed in, 52–56; CBDCs in, 14, 236, 316, 349–352; commodity price changes hurting, 176; cross-border investment channels lacking in, 292; currency debasement in, 43; currency substitution in, 32; dollarcization in, 32; enabling technologies lagging in, 233; financial inclusion lacking in, 54–55; fintech innovations in, 13; foreign currency debts of, 295; IMF special drawing rights and, 284; mobile money in, 13, 55, 241; own currency issuance by, 167; pandemic damage to, 317; payments capabilities lacking in, 316–317; remittances to, 316

diamonds, 40, 41

digital currency exchanges, 125

digital fiat currencies: anonymity of, 210; banning, 212; CBDCs, 6, 83, 208

Here is a summary of the key points about Austria, 168:

Austria is a country located in Central Europe. It has a population of about 8.9 million people.
In 168, the Habsburg monarchy ruled over Austria and it was part of the Holy Roman Empire. This was during the Baroque period.
Key events in Austria in 168:
The Great Turkish War against the Ottoman Empire was ongoing, with Austria allied with Poland and Venice against the Ottomans.
Emperor Leopold I persecuted Protestants in Austria, revoking religious freedoms.
Construction of the Karlskirche, an iconic Baroque church, began in Vienna.
Composer Johann Pachelbel was born in Austria.
Economically, Austria was an absolutist, feudal state at this time. Agriculture dominated while proto-industries developed.

So in summary, 168 marked a time of Habsburg rule, Baroque culture, and religious persecution in Austria as it participated in the Great Turkish War within the Holy Roman Empire.

Here is a summary of the key points from the excerpt:

Discusses the potential impacts of financial technology (Fintech) innovations on the financial system, including new digital currencies like Bitcoin and central bank digital currencies (CBDCs).
Highlights how Fintech is disrupting traditional banking and financial services, providing new options for loans, payments, wealth management, etc.
Analyzes the rise of cryptocurrencies like Bitcoin, their backing, regulation, risks, and the debate around their future. Discusses alternatives like stablecoins and Libra/Diem.
Examines the move towards CBDCs issued by central banks and their possible benefits, risks and design choices.
Looks at changes to international finance and the global monetary system, including capital flows, developing economy impacts, and the status of the US dollar.
Considers the regulatory challenges posed by Fintech and actions like sandboxes to encourage innovation.
Discusses financial inclusion, privacy, security, and other key issues related to technological changes in finance.
Assesses the depth of Fintech’s potential impacts on finance and the broader economy, while noting the uncertainties involved.

Here is a summary of the key points from the referenced pages:

Central banks issue and manage a country’s currency and monetary policy. They can curb financial intermediaries through regulations and provide last resort lending.
Cryptocurrencies operate without central bank backing. Their values fluctuate widely based on demand.
Governments back fiat paper currencies and regulate finance. Fintech innovations pose regulatory challenges.
Greece, Italy, and other countries faced debt crises and economic turmoil after the global financial crisis. Capital controls were imposed in some cases.
Hacking, fraud, and cyber risks are concerns with cryptocurrencies and digital finance. Protections against criminal activity are needed.
Mobile phones enabled disruptive digital payment systems like M-Pesa in Kenya. But regulations, identity, and financial access are issues in developing economies.
Global capital flows freely across borders, facilitated by Fintech. But this raises policy spillovers, currency pressures, and new risks.
The US dollar dominates global payments and reserves but faces potential competition from digital currencies. The international monetary system may see increased multipolarity.
Interest rates, quantitative easing, and other monetary policies aim to control inflation, boost growth and employment. Unconventional policies were used in response to the global financial crisis.
Cryptocurrencies like Bitcoin offer an alternative decentralized payment system. But volatility, governance, and energy use are challenges.

Here is a summary of the key points on shadow banking and anonymity in the book:

Shadow Banking

Growth of shadow banking system from $27 trillion in 2002 to $52 trillion in 2007 (pp. 49-50)
Shadow banks are financial intermediaries that provide services similar to traditional commercial banks but operate outside normal banking regulations (pp. 49-50)
Examples include structured investment vehicles (SIVs), money market funds, hedge funds, private equity firms (pp. 50-52)
Risk of shadow banking system is lack of oversight and vulnerability to runs (pp. 52-53)

Anonymity

Anonymity and privacy are key features of physical cash (pp. 19, 127-129, 230)
Cryptocurrencies aim to provide anonymity like cash through use of pseudonyms (pp. 158, 358)
Anonymity raises concerns about facilitating criminal activity, tax evasion (pp. 13, 175, 214-217)
However, anonymity also has benefits such as privacy protection (pp. 19, 127-129)
CBDCs could reduce financial privacy and anonymity compared to cash (pp. 22, 228-230, 252-253, 266)
Regulations needed to balance anonymity, privacy protections in digital finance (pp. 327-329)

In summary, the growth of shadow banking demonstrates risks arising outside traditional regulations, while anonymity illustrates the complex tradeoffs between privacy protections and illicit usage in innovations like cryptocurrencies and CBDCs. Balanced regulatory approaches are needed.

#book-summary

The Future of Money - Eswar S. Prasad